Published: Monday,
26 Nov 2012 | 1:58 AM ET
TOKYO (Reuters) - Shareholders of Japan's
embattled Renesas Electronics Corp are close to approving a government-led
bailout, sources familiar with the talks said, sending the firm's shares 17
percent higher on relief that the $2.4 billion rescue was being
finalized.
The deal is set to keep the
world's biggest maker of microcontroller chips afloat for the next few years,
but analysts say that despite job cuts and planned plant closures, Renesas still
faces many challenges including the restructuring of its loss-making system chip
division.
The state-backed Innovation
Network Corp will spend 180 billion yen ($2.2 billion) to take a two-thirds
stake in Renesas, which has been hit by fierce overseas competition, production
cuts by clients and fragile finances that have prevented it from upgrading
infrastructure.
As part of the bailout, eight
manufacturers including key clients such as Toyota Motor Corp and Nissan Motor
Co Ltd will provide another combined 20 billion yen.
Shareholder approval of the deal,
while expected, had been delayed for several weeks and an announcement is now
likely in early December, said the sources, who declined to be identified as the
matter is not public.
A Renesas spokesman said nothing
had been decided.
Investors jumped to cover short
positions in the stock, said Makoto Kikuchi, chief executive officer of Myojo
Asset Management, noting that unlike some other troubled Japanese electronics
firm such as Sharp Corp, the company's expertise in chips for cars meant it was
worth investing in.
The bailout was put together to
counter an earlier bid by U.S. private equity firm KKR & Co LP amid worries
that the firm's technology would fall into foreign hands.
"As soon as stock investors see
signs that the company is working hard to return to profit, they will be
prepared to invest long-term," Kikuchi said.
Shares in Renesas closed 16.6
percent higher at a two-month high but are still down 42 percent since the
beginning of April, the start of Japan's fiscal year.
Recent history has been brutal for
Japan's chipmakers and Renesas, formed from the struggling chip divisions of its
major shareholding companies Hitachi Ltd, Mitsubishi Electric Corp and NEC Corp,
will be keen not to repeat the mistakes of now-bankrupt fellow chipmaker Elpida
Memory Inc.
Elpida, formed from the merger of
several big companies' DRAM chip making operations, succumbed to slumping prices
and relentless competition from South Korean rivals and is being acquired by
Micron Technology Inc of the United States.
Japan's tech sector has also seen
the creation of Japan Display Inc, a firm formed from the divisions of three TV
makers which make small liquid crystal displays and which the Innovation Network
Corp has also invested in.
The bailout comes on top of 161
billion yen in syndicated loans from four Japanese banks in September, and
before that a separate 97 billion yen Renesas previously received from the banks
and its major shareholders.
In return, the company has slashed
more than 7,000 jobs this year and pledged to sell or close eight out of its 18
domestic plants within three years.
Renesas, which competes with
Samsung Electronics Co Ltd and U.S.-based Freescale Semiconductor Inc, has
predicted a net loss of 150 billion yen for the year to March.
The Nikkei newspaper also said on
Monday that Renesas will receive an additional 1 billion yen each in support
from Hitachi and NEC. Sources said the two firms will not take in Renesas
employees, while Mitsubishi Electric is considering taking in some workers from
the chipmaker. ($1 = 82.3700 Japanese yen)
(Additional reporting by Ayai
Tomisawa; Editing by Edwina Gibbs)
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