U.S. fund eyes taking majority stake in Renesas

Kyodo, Bloomberg

U.S. investment fund Kohlberg Kravis Roberts & Co. is considering acquiring a controlling stake in struggling chipmaker Renesas Electronics Corp. through a third-party allocation of new shares worth ¥100 billion, possibly this year, sources said Wednesday.

By obtaining a majority of Renesas shares, KKR intends to speed up efforts to streamline operations and revive the battered Japanese firm, the sources said.

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. Renesas aims to strengthen its financial standing by accepting KKR’s investment and taking restructuring measures, including a workforce cut through such steps as soliciting voluntary retirement by more than 5,000 group employees and selling or closing nine plants in Japan.

Among major Japanese chipmakers hit by the strong yen and increasing competition with other global manufacturers, Elpida Memory Inc., now under corporate rehabilitation, has been trying to restructure itself with the help of U.S. semiconductor maker Micron Technology Inc.

As for Renesas, its three major shareholders — Mitsubishi Electric Corp., Hitachi Ltd. and NEC Corp. — have already decided to provide loans totaling ¥50 billion to shore up its business, while Bank of Tokyo-Mitsubishi UFJ and other creditor banks have decided to use existing credit lines to offer another ¥50 billion in loans.

A formal agreement will be made next month between the main creditor banks of Renesas and its shareholders, reports said.

Japanese chipmakers have struggled as South Korea’s Samsung Electronics Co. extended its dominance. Idaho-based Micron Technology Inc. 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.

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 forecast Aug. 2 it will return to an operating profit this fiscal year. Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, may be ¥21 billion for the 12 months ending March 31, compared with a loss of ¥56.8 billion a year earlier, Renesas said.