Japan’s Denso Corp. and Mitsubishi Electric Corp. agreed to invest $1 billion in exchange for a quarter of Coherent Corp.’s silicon carbide business.
(Bloomberg) — Japan’s Denso Corp. and Mitsubishi Electric Corp. agreed to invest $1 billion in exchange for a quarter of Coherent Corp.’s silicon carbide business.
Denso and Mitsubishi will each invest $500 million and receive a 12.5% stake, Coherent said in a statement Tuesday that confirmed a Bloomberg News report. The deal values the unit at about $4 billion.
Saxonburg, Pennsylvania-based Coherent will keep a 75% stake in the entity, which will be operated as an independent subsidiary. Shares of Coherent jumped as much as 13% in pre-market trading Tuesday in New York. The stock closed trading Monday at $31, giving the company a market value of about $4.7 billion.
Coherent has the option to sell more of the unit and raise as much as $500 million within six months following the close of the deal, as well as sign additional supply agreements, Chief Executive Officer Vincent Mattera said in an interview.
“We’re not restricted,” he said, referring to potential money from other partners. “It could be from anybody.”
Supply Partnership
Mitsubishi Electric announced a previous electric vehicle supply partnership with Coherent earlier this year. Denso is a key supplier to Toyota Motor Corp.
Silicon carbide is more efficient than traditional silicon chips and has been used in some electric cars, including Tesla Inc. vehicles, to speed charging and extend range. EV makers are also looking for other less expensive materials, as well as alternatives for improving efficiency.
“Fast charging infrastructure itself for the cars is also enabled by silicon carbide,” Mattera said.
The $3 billion market for silicon carbide is forecast to grow to $21 billion in 2030, Coherent said in a statement.
Debt Reduction
Coherent said in a May filing that it was undergoing a strategic review of the business and was considering a minority investment by a strategic or financial partner as well as a joint venture and a sale.
The company previously announced a 10-year, $1 billion commitment in the silicon carbide business so this transaction could help free it up for other investments. The company has more than $4 billion in total debt, according to data compiled by Bloomberg.
“Our number-one priority is to delever the company and to generate free cash flow from ongoing business operations to pay down debt,” Mattera said.
Reuters reported last month that the unit was attracting interest from four Japanese companies, including Denso and Mitsubishi Electric.
Coherent was acquired after a bidding war in 2021 by II-VI Inc., which renamed itself after the target following the deal’s closing a year later.
Bank of America Corp. and Allen & Co. advised Coherent on the deal.
–With assistance from Nicholas Takahashi and Yuki Furukawa.
(Updates with confirmation starting in first paragraph, adds quotes from CEO)
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