Japanese public/private partnership mulling Renesas rescue

September 27, 2012 - A Japanese state-backed domestic partnership has been forged to mull taking over ownership of struggling domestic chipmaker Renesas, in response to a rumored acquisition bid by US-based investment firm KKR just days ago.

According to local reports, the Innovation Network Corporation of Japan (INCJ), a state-backed investment fund, has banded together with several private-sector firms including Toyota Motor and Panasonic and has pitched the idea to Renesas’ customers including Nissan Motor, Honda Motor, Canon, and other auto parts manufacturers. It wants to draw up a plan in the next few weeks asking for up to ¥100B from Renesas’ main shareholders (NEC, Hitachi, and Mitsubishi Electric) and creditor banks — one local report suggests they could pull together up to ¥200B in investments.

For its part, Renesas said it wasn’t behind the reports, but noted with some crafted vagueness that they "cannot be confirmed or regarded as fact at this time."

The proposed backers are keen to ensure the health of Renesas, which is the biggest global supplier of microcontroller products for key domestic industries including automotive and home appliances. New (and foreign) private equity ownership in the chipmaker might be perceived as more focused on cost-cutting and streamlining, which could put those supplies at risk, so the thinking goes. "With some half of Japan’s [gross domestic product] growth related to the auto sector in recent years and an enormous number of jobs dependent on it, clearly this was one company deemed worth saving," explained CLSA equity strategist Nicholas Smith, quoted by the Wall Street Journal. Renesas’ customers "see the bailout as a less-expensive option when compared to the potential risk to their supply lines."

That distinction explains why "Japan Inc." would come to the rescue of Renesas, but not for domestic peer Elpida, which earlier this year filed for bankruptcy and is currently in negotiations for an acquisition by Micron.

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