Cree ponders pay-off from Color Kinetics investment

Cree is about to gain access to its shares in Color Kinetics, and could choose to take the cash or look at a takeover.

A recent story published in the Triangle Business Journal suggests that Cree's investment in Color Kinetics is about to deliver a financial windfall for the LED chip manufacturer, which is one of the most well-known technology companies in the Triangle region of Raleigh-Durham-Chapel Hill, North Carolina.

The author, Sougata Mukherjee, reports that Cree invested $12.7 million in Color Kinetics between 2000 and 2001 in different rounds. Color Kinetics, a specialist in developing intelligent solid-state lighting systems using LEDs, went public in June 2004.

Following the stock offering, Cree remained one of the largest shareholders of Color Kinetics, holding 2.2 million shares, almost 12 percent of the company. Those shares are under a lockup agreement that expires on December 22.

Based on the December 1 closing price of $16.70 a share, Cree's holdings currently are worth about $36.7 million - a $24 million before-tax profit on its investment.

The article speculates on what Cree might choose to do after the expiration of the lockup period. As well as cashing in the shares, or holding on to them to let the investment ride, another option is that Cree might make a bid to acquire Color Kinetics.

Cree has already moved up the supply chain by introducing its first packaged products, the XLamp series, while buying Color Kinetics would take it a couple of steps further.

Mukherjee estimates that, with Color Kinetics' revenues expected to reach $50 million next year, a Cree buyout could cost more than $350 million.

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