Image source: Cree.

What: Shares of Cree Inc. (WOLF -0.71%) were up 12.4% as of 11:30 a.m. EDT Thursday after the LED company announced preliminary fiscal fourth-quarter results and the execution of an agreement to sell its Wolfspeed Power and RF division to Infineon Technologies AG (IFNNY -2.31%) for $850 million in cash.

So what: As part of its strategy unveiled last year to "become a more focused LED lighting company," Cree proposed an IPO of Wolfspeed to raise capital to accelerate its growth, create a more focused management team for the division, and maximize its value to Cree shareholders. Following that announcement, however, Cree was approached by several companies interested in buying the business directly -- an option Cree ultimately decided was best.

Now what: Cree CEO Chuck Swoboda said:

Selling Wolfspeed to Infineon speeds our transition to a more focused LED lighting company while providing significant resources to accelerate our growth. Divesting Wolfspeed is targeted to reduce short-term profits, but increase free cash flow. We believe this is the right decision for the company, as it unlocks value, increases management focus on the core business and supports our mission to build a more valuable LED lighting technology company. 

Swoboda added any raised capital and increased free cash flow will be used for strategic M&A and to support incremental stock repurchases. As it stands, Cree anticipates receiving net proceeds of $585 million from the deal (after taxes and deal-related costs), and the transaction is expected to close by the end of calendar 2016.

In addition, Cree stated preliminary fiscal fourth-quarter revenue results came in at the high end of its guidance range at roughly $388 million, driven primarily by stronger-than-expected revenue from its LED products segment (at $160 million) thanks in part to licensing revenue contributions. Meanwhile, revenue from Lighting Products and Wolfspeed were each in line with expectations at $197 million and $31 million, respectively.

Investors can expect to receive a more detailed review of these results as well as guidance for the current (fiscal first-quarter 2017) quarter when Cree reports final fiscal Q4 results on Aug. 16, 2016. But in the meantime, given the favorable divestment and solid preliminary results, it's no surprise to see shares trading significantly higher today.