Monday morning’s announcement that Phillips is spinning off its LED and automotive lighting businesses into a separate company is triggering speculation about a possible deal with LED rival Cree.

Cree (Nasdaq: CREE), which is based in Durham, and Philips (NYSE: PHD) shares jumped 3.4 percent and 4 percent respectively on the news of the Philips spinoff.

In April, Cree Chairman and CEO Chuck Swoboda said the company was interested “strategic opportunities.”

Here’s an alert sent by financial website SeekingApla:

“Both Philips (PHG +4%) and Cree (CREE +3.4%) are up strongly after Philips announced it’s merging its Lumileds LED component unit with its automotive lighting business to create a standalone company, and will “explore strategic options to attract capital from third-party investors for [the] business.”

“The move could be fueling hopes Philips will try to merge the unit with Cree, which competes against Lumileds in an LED component market that has seen intense price competition. As it is, Cree has often been the subject of M&A rumors (some of them involving Philips).
Philips, for its part, argues spinning off Lumileds and automotive lighting will help them grow sales to customers who currently view Philips as a rival. The company says its internal lighting business will be focused on system/lamp sales going forward, and that it’s open to an IPO for the spinoff.”

Details from AP

Here’s The Associated report out of Amsterdam on Philip’s decision:

“Royal Philips NV said Monday it plans to spin off its fast-growing LED parts business into a separate company, to win new customers and to capitalize as manufacturers integrate LED lights into an ever-widening array of products.

“Philips, the world’s largest lighting producer, says the separation will be complete by early 2015 but it is not clear yet whether the division will seek a separate listing, or if it will remain within Philips for a time before it is sold. Philips executive Pierre-Yves Lesaicherre, who currently heads the parts division, will remain as CEO of the new company.

“LED sales are surging, as they can be programmed to emit light of different colors and need less energy than traditional lights. Manufacturers such as Philips, General Electric and Cree of the United States, as well as Germany’s Osram, which was spun off from Siemens last year, all saw their LED sales rise at well above double digit rates in 2013, even as the price per bulb fell.

“Philips’ LED parts business, which is a major supplier to carmakers, had sales of 1.4 billion euros ($1.91 billion) in 2013.

“Philips is prepared to become a minority shareholder in the parts business and will remain a big customer as it continues to sell its own branded lights and services, said Philips Chief Executive Frans van Houten.

“Van Houten said the spin-off was not due to concerns LEDs themselves are becoming a commodity, despite recent price declines.”

“I can assure you it is a very sound business with great margins and good profitability,” he said. “At this stage, given the strong intellectual property and differentiation” of Philips’ LEDs, “we think we can compete very well with Asian competitors.”