TOKYO Private equity firm KKR is in talks to invest about 100 billion yen ($1.3 billion) for control of Japan's Renesas Electronics Corp, sources said on Wednesday, offering a lifeline to the struggling chipmaker and pushing its shares up 35 percent.
The deal would give KKR more than 50 percent of cash-strapped Renesas, and could speed the pace of its current restructuring as it fights for survival in the face of sinking prices and aggressive overseas rivals.
News of the plan pushed Renesas' battered shares to a seven-week high, but the stock is still trading at around half its levels of six months ago. At Tuesday's close it had a market value of about $1.2 billion.
A deal with KKR would be the firm's largest investment in Japan, and would be among the top ten biggest private equity investments into the world's third largest economy.
"If KKR holds management control, it will quicken the decision making process compared to the current management, and it will be possible to speed up the restructuring plans," said Katushide Takahashi, credit sector specialist at Citigroup.
Under the proposal, New York-based KKR & Co LP would buy new shares of Renesas, the world's fifth-largest chipmaker, through a private placement, sources familiar with the deal said.
Executives from KKR traveled to Tokyo this week to present the plan to Renesas' main banks and its three major shareholders, NEC Corp, Hitachi Ltd and Mitsubishi Electric Corp, one of the sources said.
Renesas, the world's leading manufacturer of microcontroller chips used in cars, is currently implementing a restructuring plan that would lay off 12 percent of its workforce and sell or consolidate half of its domestic plants.
The company has been slow to shutter loss-making businesses, and is struggling to fund the heavy investments required in other parts of its business.
KKR would likely push forward an even more aggressive restructuring of the loss-making system LSI business, several analysts said, which has been badly hit by a steep decline in sales to Japan's beleaguered consumer electronics makers.
The U.S. buyout firm was hoping to reach a formal agreement as early as September, the Nikkei business daily said.
KKR EYES JAPAN
KKR, run by cousins and private equity pioneers Henry Kravis and George Roberts, arrived in Asia in 2006. A Renesas stake would be KKR's second deal in Japan after their 2010 acquisition of recruitment services company Intelligence from Usen Corp for $357 million.
KKR is currently raising its second fund for Asia, which at $6 billion would be the largest ever raised for the region. Japan is targeted as one of its main investment destinations, as the country has long been touted by Asia head Joseph Bae as a promising place to put the firms money to work.
Henry Kravis has also pointed to signs of change in Japan, and says its exports make it a vital piece of the Asian and global economy.
"They really do want to change the way they are doing business, they want to become more open, they want to move much faster," he told a conference last November.
KKR's bid marks the second time this year that foreign private equity firms have targeted investments in a Japanese chipmaker, after China's Hony Capital and U.S. buyout fund TPG Capital teamed up to bid for bankrupt Elpida Memory Inc.
Elpida, Japan's last remaining player in the dynamic random access memory (DRAM) market, is now in talks to be bought by U.S. rival Micron Technology Inc.
Other private equity funds had presented plans to inject cash into Renesas in recent months, sources have told Reuters.
Renesas recently secured 49.5 billion yen in support from Hitachi, Mitsubishi Electric and NEC, which together own a 90 percent stake in the company, while banks have promised an additional 50 billion yen loan.
Renesas said various media reports on Wednesday were not based on announcements by the company. KKR declined to comment.
The chipmaker, which faces stiff competition from South Korea's Samsung Electronics and Freescale Semiconductor, earlier this month forecast a record annual net loss of 150 billion yen.
Renesas closed up by its daily limit at 308 yen, its highest level since July 10.
KKR's expected bid would be the third billion-dollar plus acquisition investment in Japan by foreign private equity funds so far this year, following Bain Capital's $1.3 billion acquisition of TV shopping channels company Jupiter Shop Channel, and Permira's $1 billion acquisition of sushi restaurant chain Akindo Sushiro. ($1 = 78.5000 Japanese yen)
(Additional reporting by Junko Fujita and Stephen Aldred; Writing by Mari Saito; Editing by Michael Flaherty and Richard Pullin)