Bloomberg News

Renesas Surges 31% as Japan Fund May Counter KKR Offer

September 24, 2012

Japan Rescue Fund May Counter KKR Bid for Chipmaker Renesas

Innovation Network Corp. of Japan may offer financial support to Renesas if asked, an executive of the investment fund said on Sept. 22, declining to be identified because of company policy. Photographer: Kiyoshi Ota/Bloomberg

Renesas Electronics Corp. (6723) jumped the most in about a month in Tokyo trading as a Japanese state- backed fund may join two of the nation’s largest manufacturers in a bid for the unprofitable chipmaker, countering an offer from KKR & Co. (KKR:US)

The stock surged by the daily limit of 80 yen, or 31 percent, to close at 336 yen after not trading almost the entire day. Trading wasn’t possible as bids to buy the stock of the world’s biggest maker of microcontrollers outnumbered sells.

Japanese companies including Toyota Motor Corp. (7203) and Panasonic Corp. (6752) may join with Innovation Network Corp. of Japan to invest more than 100 billion yen ($1.3 billion) for a majority stake in Renesas, a government official said today, declining to be identified because the plan hasn’t been made public. The plan for the Apple Inc. (AAPL:US) supplier was reported by the Nikkei newspaper Sept. 22.

“The plan looks positive as it means boosting the company’s capital and getting the money needed to invest in microcontroller facilities,” said Naoki Fujiwara, who helps oversee $6.7 billion at Shinkin Asset Management Co. in Tokyo.

Joichi Tachikawa, a spokesman for Toyota, and Atsushi Hinoki, a spokesman for Panasonic, declined to comment. Yoichi Kobayashi, a spokesman for Renesas, wasn’t immediately available to comment.

Hitachi, Nintendo

Innovation Network may offer financial support to Renesas if asked, an executive of the investment fund said Sept. 22, declining to be identified because of company policy. Renesas stock has declined 29 percent this year.

KKR, a New York-based private-equity firm, offered about 100 billion yen to banks and the three main shareholders NEC Corp. (6701), Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503) for control of Renesas, a person with knowledge of the matter said last month. Shares of the Kawasaki, Japan-based company surged by a record in Tokyo after reports of the bid.

Renesas, whose customers include 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. It plans to cut 5,000 jobs and may close or sell as many as nine of 18 domestic factories to help end losses.

Samsung, Micron

NEC, Hitachi and Mitsubishi Electric said in July they would provide 49.5 billion yen in loans to Renesas. Banks including Mitsubishi UFJ Financial Group Inc. (8306), Mizuho Financial Group Inc. (8411) and Sumitomo Mitsui Trust Holdings Inc. (8309) have agreed to continue offering about 50 billion yen in lines of credit to the chipmaker, two people with knowledge of the matter said in May.

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.

Innovation Network has been considering ways to help revive the nation’s chipmaking industry, the fund executive said Sept. 22, adding that there’s been nothing decided on the timing or extent of any support for Renesas.

The fund said in June it would raise 4 billion yen through a private placement of shares to eight companies including Toyota, Canon Inc. (7751) and Sony Corp.

Earthquake, Tsunami

Renesas plans to sharpen its focus on producing microcontrollers, used in automobiles and TVs. The business offers an operating profit margin of at least 10 percent, Renesas said in June.

The company held a 27 percent share of the global microcontroller market last year, making it the world’s largest supplier of the devices. It plans to raise that 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.

About 50 microcontrollers are used in car navigation systems, monitors, dashboard meters and audio systems, according to Renesas. Damage to the chipmaker’s plant northeast of Tokyo from the March 2011 earthquake and tsunami crippled output at automakers in Japan for months.

During the disruption, carmakers turned to supplies from companies including Globalfoundries Inc. and Freescale Semiconductor Ltd.

“Renesas’ technology is very high-tech, and we hope we’ll be able to maintain a stable supply of their products,” Takeshi Uchiyamada, a vice chairman of Toyota, said today in Tokyo.

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 total 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.

To contact the reporter on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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