What happened

Shares of light-emitting diode specialist Cree (NASDAQ:CREE) are soaring in Tuesday's trading. Investors embraced Cree's decision to spend $425 million on a strategic buyout that will take the company in a new direction. The stock was 12.3% higher as of 1:30 p.m., Eastern time.

So what

In a completed and closed all-cash deal, Cree has picked up the radio frequency (RF) power operations of chipmaker Infineon (NASDAQOTH:IFNNY). Roughly 260 employees are making the move to Cree, along with packaging and test assets in Morgan Hill, Calif., and Infineon's list of current RF power customers. To ensure a smooth transition, Infineon is standing by to supply additional components, wafers, and services as needed until Cree gets its bearings on these new assets.

The RF power operations will be folded into Cree's Wolfspeed division, adding something like $115 million of annual revenue to a segment that recorded sales of $221 million in fiscal year 2017.

Cree's corporate logo, blue on white.

Image source: Cree.

Now what

That's a drastic turn of events, given that Cree was attempting to sell Wolfspeed to Infineon a year ago. That $850 million deal fell apart due to regulatory issues, but moving in the opposite direction turned out to be much easier. This is, of course, also a smaller agreement since Infineon's business interests in the RF power area were far smaller than Cree's Wolfspeed operations. That's another likely explanation for the swift completion of this spinout deal.

The $115 million top-line contribution will be a fairly small portion of Cree's total sales, approximately 8% at current run rates. Wolfspeed is generally growing faster than Cree's LED business, and also runs at higher profit margins. It's easy to see why Cree investors are applauding a stronger commitment to this successful line of business today.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.