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Last updated: August 29, 2012 6:32 pm
Kohlberg Kravis Roberts is in preliminary talks to take over Renesas Electronics of Japan through a Y100bn ($1.27bn) share purchase that would be the US private equity group’s largest Japanese investment.
People close to the matter said on Wednesday that KKR had proposed buying a controlling stake of more than 50 per cent in the struggling microchip maker, which had been seeking new investors since May. KKR declined to comment
Renesas unveiled a restructuring plan this year as it sought to avoid the fate of Elpida Memory, a related Japanese chipmaker that filed for bankruptcy protection in April. Both companies are part-owned by Hitachi, NEC and Mitsubishi Electric, which built them by combining their own underperforming semiconductor businesses starting a decade ago.
Both Renesas and Elpida, which make different kinds of microchips, have had trouble competing with lower-cost rivals elsewhere in Asia. Last month Micron, the US chipmaker, agreed to buy Elpida for Y60bn up front and a further Y140bn by 2019.
Shares in Renesas jumped by their daily trading limit of Y80 on news of the negotiations with KKR, finishing 35 per cent above Tuesday’s closing level at Y308. Renesas declined to comment.
Foreign private equity groups have struggled to establish a foothold in Japan, where both their ability to secure deal flow and their ability to manage their investments in a country where costs are high, productivity gains elusive and growth virtually nil has been mixed. For example, TPG partnered up with Chinese buyout fund Hony to make a bid for Elpida but lost out in the auction.
For KKR, a buyout of Renesas would be only the group’s second deal in Japan since it began hunting for targets in the country in 2006. In 2010, KKR bought Intelligence, a recruitment services company, for $356m.
When KKR raised its $4bn first Asia buyout fund in 2007, executives thought Japan would be a far greater part of its activity than has been the case. Today it is raising its second Asia buyout fund. It has already raised $4bn and is targeting $6bn, at the same time as its rivals such as TPG are struggling to raise similar amounts.
KKR knows the microchip space well, having turned around MMI, a Singapore-based chipmaker as competitors went under in the wake of the global financial crisis
Renesas was formed in 2002 and makes device-control chips known as system LSI. Although it controls more than a third of the global market for automotive-use LSI – tiny computers that control power windows and door locks, among other things – it has struggled to earn a profit.
The company suffered a net loss of Y62.6bn last year and is planning to cut a quarter of its workforce and outsource more production to one of its Taiwanese rivals, Taiwan Semiconductor Manufacturing.
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