Renesas Electronics Corp. (6723) surged by a record 35 percent as a person with knowledge of the matter said KKR & Co. (KKR:US) is in talks to spend about 100 billion yen ($1.3 billion) buying shares of the unprofitable Japanese chipmaker.
Renesas closed at 308 in Tokyo trading, the stock’s highest since July 10. New York-based KKR will take a controlling stake by the end of the year, the Nikkei newspaper reported earlier, without saying where it got the information.
Renesas, whose customers include Apple Inc. and Nintendo Co., is trying to end losses exacerbated by falling demand for its system LSI chips, used for functions ranging from processing images for TV screens to crunching data. The Kawasaki, Japan- based company’s major shareholders agreed in July to provide Renesas with loans to help cover costs including worker buyouts and reorganization of its factories.
“Considering the record of the current management, it may lead to positive changes if KKR shakes up the management,” Takeo Miyamoto, an analyst at Deutsche Bank AG, said today by phone. “Investors who thought Renesas would go bankrupt and sold the shares bought them again after today’s report.”
The U.S. private equity firm presented the offer to Renesas stakeholders including its biggest shareholders NEC Corp. (6701), Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503) and main banks, the person said, asking to remain anonymous as the negotiations are private.
NEC gained 6.5 percent, while Hitachi rose 1.1 percent in Tokyo. Mitsubishi Electric fell 0.2 percent.
The Nikkei newspaper reported the planned investment earlier today. Renesas isn’t the source of the report, the Kawasaki, Japan-based company said in a statement to the Tokyo Stock Exchange. Steve Okun, a Hong Kong-based spokesman for KKR, declined to comment.
A formal agreement will be made next month between the main creditor banks of Renesas and its shareholders, the Nikkei said. NEC and Mitsubishi Electric declined to comment, and Hitachi didn’t immediately return a phone call seeking comment.
Japan’s chipmakers have struggled as South Korea’s Samsung Electronics Co. (005930) extended its dominance. Boise, Idaho-based Micron Technology Inc. (MU:US) agreed in July to buy Tokyo-based Elpida Memory Inc., after Elpida filed for bankruptcy protection.
Renesas plans to cut 5,000 jobs and may close or sell as many as nine of its 18 domestic factories to help end losses, after falling demand for TVs and a drop in prices for computer chips eroded earnings.
The chipmaker’s three main shareholders, NEC, Hitachi and Mitsubishi Electric, will provide 49.5 billion yen in loans to Renesas in October, they said July 31. Banks including Mitsubishi UFJ Financial Group Inc. (8306), Mizuho Financial Group Inc. (8411) and Sumitomo Mitsui Trust Holdings Inc. (8309) have a basic agreement with Renesas to continue offering about 50 billion yen in lines of credit to the chipmaker, two people with knowledge of the matter said in May.
Renesas plans to increase its focus on making microcontrollers, used in cars and TVs. The business has an operating profit margin of at least 10 percent, Renesas said in June.
The company had a 27 percent share of the global microcontroller market last year, making it the world’s largest manufacturer of the products. It plans to raise the share to 35 percent in five years by targeting emerging markets, and an alliance with Taiwan Semiconductor Manufacturing Co. will help cut costs and widen profit margins, Renesas said in June.
Renesas forecasts it will return to an operating profit this fiscal year, it said Aug. 2. Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, may be 21 billion yen for the 12 months ending March 31, compared with a loss of 56.8 billion yen a year earlier, Renesas said.
Renesas was formed in 2010 through the merger of money- losing chipmakers Renesas Technology Corp., a venture between Hitachi and Mitsubishi Electric, and NEC Electronics Corp.
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