KKR prepares to take over ailing chipmaker Renesas

August 30, 2012


Major U.S. investment fund Kohlberg Kravis Roberts and Co. (KKR) is preparing to acquire Renesas Electronics Corp., a struggling manufacturer of semiconductors that has been largely snubbed by its Japanese parent companies.

Renesas will likely follow in the footsteps of Elpida Memory Inc., another major Japanese chipmaker that is expected to come under the umbrella of foreign capital.

Renesas has forecast a net loss of 150 billion yen ($1.9 billion) in the year ending in March 2013 due largely to restructuring and other expenses. That will lower the company's capital adequacy ratio to around 10 percent from 25.4 percent at the end of March 2012.

KKR's proposal to invest more than 100 billion yen in Renesas came at a critical time in the chipmaker’s drive to restore its financial health.

Renesas initially planned to ask NEC Corp., Hitachi Ltd. and Mitsubishi Electric Corp.--the three founding bodies that together hold more than a 90-percent stake in Renesas--to extend about 100 billion yen in additional investment. But NEC refused to extend even loans to Renesas.

The three companies provided only 50 billion yen in assistance to Renesas. All that assistance must later be repaid and cannot be spent on increasing the company’s capital.

KKR is one of the oldest investment funds in the United States and has been involved in a number of high-profile takeovers, including RJR Nabisco Inc., which was called the largest acquisition in history.

"I would welcome investment by KKR, which has a long history and an established reputation," a senior official of a bank that deals with Renesas said on Aug. 29.

Senior officials of Renesas' parent companies also indicated they would approve KKR's investment.

KKR is considering improving Renesas' profitability over several years and then selling the company for a high price. So far, no Japanese enterprise has shown interest in acquiring Renesas.

Some of Renesas' shareholders and financial institutions are worried that if KKR sells Renesas to a foreign company, technologies that are vital to Japan's auto industry could be leaked.

Renesas held a 42-percent global share in automotive microcontrollers in 2011. Most of them were shipped to Japanese automakers.

Microcontrollers are used to control engines, suspension and other parts of luxury models, so they do affect fuel-efficiency and the comfort of passengers.

Microcontrollers are essentially “tailor-made” because their specifications differ for each automaker and each model.

"If microcontroller 'recipes' that Japanese automakers and Renesas have created were to leak to Chinese automakers, for example, that could constitute a major threat," said a senior official of a major electronics firm.

Negotiations over KKR's proposal could drag on if Renesas and its major shareholders set conditions on future acquirers to prevent information leaks.

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