August 26, 2009 / 12:34 AM / 10 years ago

CORRECTED - CORRECTED-UPDATE 4-Renesas/NEC Elec may get $2.1 bln bailout -Ni

(Corrects NEC Electronics net loss forecast in paragraph 13 to ... 9 billion yen ..., not ... 82.6 billion yen)

* NEC Elec, Renesas delay merger deadline again to Sept

* Merging firms looking to govt for more money -sources

* NEC Elec shares soar 11 percent (Adds investor comment, background)

By Mayumi Negishi

TOKYO, Aug 26 (Reuters) - Japan’s NEC Electronics Corp (6723.T) and Renesas Technology may receive a $2.1 billion bailout from their parent companies to bring about the merger of the two loss-making chipmakers in a sector wracked by weak demand and prices, the Nikkei business daily said.

The two, which are seeking to create the world’s third-largest semiconductor maker after Intel Corp (INTC.O) and Samsung Electronics Co (005930.KS), said in a statement that they now aim to close the deal in September, pushing back the deadline for the second time by a month.

Shares in NEC Electronics, which makes chips for Toyota Motor Corp’s (7203.T) Lexus luxury car and Nintendo Co Ltd’s 7974.OS Wii game console, shot up 11 percent on the news. Investors were likely relieved that the April merger of the two arch-rivals may now be back on track.

Sources said the main sticking point in the deal — widely seen as necessary for the chipmakers’ survival — had been unlisted Renesas’ debt, estimated at about 250 billion yen to 300 billion yen, and NEC’s demands that Renesas close its older lines.

The Nikkei said Renesas’ parents Hitachi Ltd (6501.T) and Mitsubishi Electric Corp (6503.T) would foot most of the 200 billion yen in aid being discussed while NEC Corp (6701.T), the parent company of NEC Electronics, would contribute to restructuring costs.

“This amount is probably what is needed to survive,” said Mitsushige Akino, Ichiyoshi Investment Management Co’s chief fund manager. “It’s not nearly enough to pay for the research and capacity that they need to win when the next upcycle comes.”

For the parents, “the two firms are too good to abandon, but not good enough to risk their own businesses,” he said.

Four industry and government sources familiar with the matter said the 200 billion yen is the minimum necessary for a merger of equals. The four asked not to be identified because the deal was still being negotiated.

The amount is unlikely to go far, though, as the bulk of Renesas’ debt is short-term and it has restructuring costs to deal with, the four said.

They added that the government might be persuaded to help out, as a deal would bring much-needed consolidation in Japan’s battered system chip and microcontroller sector.

Japan pledged to shore up PC memory maker Elpida Memory Inc 6665.T with public money, to be injected next week, under a scheme to help businesses hit by the global financial crisis.

“The government has developed this new aid programme. We would want companies to make full use of it, and if it means it would push forward consolidation and make Japan’s companies stronger, we won’t stand in the way,” said one government source.

Renesas is expected to post a net loss of a little less than 90 billion yen in the year to March 2010, while NEC Electronics has forecast a loss of 9 billion yen.

REDUNDANCIES

Combined sales at NEC Electronics and Renesas totaled 1.2 trillion yen in the year ended in March, and a merger would create Japan’s biggest chipmaker, surpassing Toshiba Corp (6502.T).

The two, which have an estimated 20 percent to 30 percent product overlap, would create the world’s dominant microcontroller maker with almost a 30 percent share of the market, with Freescale Semiconductor [FSLSM.UL] a distant second.

Analysts have said the two firms’ differing technologies will limit cost-reduction measures, as executives and engineers fiercely defend their hard-won technologies.

Negotiations between the NEC and Renesas camps have been rocky as the two sides aim for a one-to-one merger. The companies had originally shot for an official agreement in July, and had already postponed it once for an August date.

Both specialise in microcontrollers, used in car engine control systems and power tools, and system chips, used to control multiple functions in cars and electronics.

NEC Electronics had previously been talking about a merger with the chip operations of Toshiba and also with Fujitsu Ltd (6702.T), sources said.

NEC Electronics shares climbed 11.4 percent to 980 yen, while NEC, which holds 65 percent of NEC Electronics, rose 3 percent.

Shares of Hitachi, which owns 55 percent of Renesas, and Mitsubishi Electric, which holds 45 percent, were up 0.3 percent, while the benchmark Nikkei average .N225 was up 1.5 percent. ($1=94.20 Yen) (Additional reporting by Nivedita Bhattacharjee in BANGALORE; Editing by Hugh Lawson)

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