What happened
Optical technology specialist Coherent (COHR 4.12%) was a hot item on the stock exchange Friday. The company's share price zoomed more than 8% higher that day, thanks to a media report about a potential large-scale investment in one of its businesses.
Coherent's gain happened on a generally downbeat day for the market, with the S&P 500 index sliding by 0.2%.
So what
Reuters published an article stating that four Japanese companies -- Denso, Hitachi, Mitsubishi, and Sumitomo -- are interested in taking a minority stake in Coherent's silicon carbide unit.
Citing an unnamed "person familiar with the matter," the news agency added that the company may accept one or more of these suitors as minority investors in the unit, at a total valuation of $4 billion to $5 billion. It's unclear how large such a minority stake might end up being.
Silicon carbide chips are popular in the electric vehicle (EV) industry, as they boost the range of such cars better than traditional silicon chips.
The news comes several months after Coherent said it would explore options for its silicon carbide operations. Receiving a cash infusion for the unit would dramatically improve the company's balance sheet, which is currently weighed down with $4.3 billion in debt.
Now what
It's exciting when a debt-burdened company gets a chance to receive a significant cash infusion for the price of only a minority stake in the target business. As always with these situations, though, investors would be wise not to trade purely on the basis of speculation and rumor.
