Apollo backs Infineon’s €735m cash call

Infineon, the loss-making German chipmaker, has unveiled plans to raise as much as €735m ($1bn) from a rights issue to repay debt, after Apollo Global Management, the US private equity group, agreed to underwrite part of the issue.

The deal is an unusual move for Apollo and could end up with the New York-based group taking close to a 30 per cent stake in the chipmaker if its shareholders do not take up their rights.

Infineon, which is thought to have approached the German government seeking bail-out funding this year, has about €570m of convertible bonds maturing next year that it could struggle to repay.

The Munich-based company is Europe’s second-largest maker of logic chips, used in cars and telephones, including Apple’s iPhone.

But it has been hit hard as customers, particularly carmakers, have slashed orders, dragging it to a quarterly loss of €258m.

The move marks a strategic departure for Apollo, which is better known for investing in distressed debt or big leveraged buy-outs.

Traditionally rights issues are underwritten by big investment banks, not private equity.

However, many private equity groups are looking for new types of deals after the large leveraged buy-outs they thrived on during the debt bubble became much harder to do in a financial and economic downturn.

The chipmaker plans to issue as many as 337m shares at €2.15 each.

Apollo would acquire as many as 326m shares if shareholders do not take up their rights, allowing it to name a new supervisory board chairman and another board member.

But if Apollo ends up with less than 15 per cent of Infineon, it has the right to walk away from the deal, which is subject to regulatory approval.

Infineon’s shares rose 3 per cent to €2.70 on Friday.

Private equity invested heavily in chipmakers during the debt bubble, buying Freescale Semiconductor in the US and NXP in the Netherlands, which are both now struggling under heavy debt burdens.

This week, Infineon sold its profitable wireline communications unit, which makes chips for broadband internet devices, for about €250m to Golden Gate Capital, the San Francisco-based private equity group.

Infineon, which had €1bn of debt and made a €3.1bn loss last year, recently let Qimonda, its memory chip business, go into liquidation after it failed to secure finance in time.

Many investors worried that Infineon could suffer a similar fate.

“It seems the company is de-risking itself in case the second half is a disaster, and we are looking at a w-shaped recovery,” said Didier Scemama, analyst at ABN Amro.

Apollo is better known for investing in debt. It recently agreed a deal with co-investors Towerbrook and York Capital to become the biggest shareholders in Monier, the German-based roofing materials group, by swapping their debt for equity.

Private equity’s record of buying minority stakes in listed companies has been mixed. The most famous such deal in Germany was Blackstone’s purchase of a 4.5 per cent stake in Deutsche Telekom three years ago, which has fallen by about half since then.