Shares in light-emitting diode manufacturer Cree (Nasdaq: CREE) soared more than 15 percent Monday after Royal Philips Electronics disclosed a $2.7 billion bid for a U.S. lightning manufacturer.
Philips said it would pay a 52 percent premium for Genlyte Group, which is based in Louisville.
The move is part of Philips’ strategy to displace GE as the top lighting company in the U.S. Philips also is committed to driving use of LEDs in traditional lighting.
Most notably, Philips bought Boston-based Color Kinetics, an LED maker, for $688 million in June, and in 2005 it bought Agilent Technology Inc.’s half of their LED joint venture, LumiLeds, for $1 billion.
Cree stock recently surged on rumors that GE might make a bid for the company in an effort to expand its LED capabilities.
The Philips announcement sent Cree shares up 15.2 percent, or $3.21, to $24.29.
American Technology Research analyst Andrew Huang also released a glowing report on the company’s future.
"For LEDs, CREE has the double-whammy of being the only independent LED supplier for the lighting manufacturers, as well as possessing the best technology in the LED industry," he said, according to the Associated Press.
Huang reiterated his "Buy" listing and $55 price target.
In an interview with the AP, fellow American Technology Research analyst Doug Freedman said LEDs are likely to become a hot area for stock growth in the coming months.
Genlyte shares also jumped more than 50 percent to better than $94 per shares.
LEDs are gaining popularity as an alternative to conventional lighting since they use less energy, last longer and generate less heat.
Philips is already the world’s largest lighting maker.
Phillips agreed to pay $95.50 – a 52 percent premium over Friday’s close – in a deal supported by management that values the Genlyte. Genlyte makes fixtures for lights used mostly by companies.
Amsterdam-based Philips said Genlyte had sales of around $1.7 billion in the 12 months ended Sept. 30.
Philips said the acquisition would strengthen its position in energy-efficient lighting, and will allow it to surpass rival General Electric Co. as the largest lighting company in North America.
Theo van Deursen, head of Philips’ lighting division, said Genlyte’s distribution channels were more important to Philips than its manufacturing technology.
Philips has invested heavily in developing energy-saving bulbs, but has so far been more successful in Europe than in the United States in marketing them.
"It’s very important that (Genlyte) are in contact…with the lighting designers and architects, which helps us a lot in bringing new products to the market," Van Deursen said on a conference call.
Van Deursen said Philips hopes to sell new products, especially LEDs, to Genlyte customers.
LEDs, or light emitting diodes, use computer chips to produce light, rather than the glowing filaments used in traditional incandescent bulbs or the gas used in fluorescent bulbs. Philips expects LEDs to gradually replace both incandescent and fluorescent lights in the coming decade, as they are more energy-efficient, they last longer, and the cost of producing them is expected to fall rapidly.
Philips said it expects to complete the deal in the first quarter of 2008, pending approval by shareholders and regulators.
Van Deursen said Philips believed it could boost Genlyte’s sales by around $30 million annually with new product offerings, and cut costs by around the same amount by helping the company with purchasing and distribution.
He said Philips did not plan significant cuts to Genlyte’s 6,700 employees, of whom 6,500 are in the United States. The employees will be part of one of Philips’ fastest-growing businesses.
Philips shares rose 1.7 percent to 28.91 euros ($42.63) in Amsterdam.