Renesas Said to Agree to $2.2 Billion INCJ Buyout Plan

A government-backed fund is preparing to spend more than 180 billion yen ($2.2 billion) for two-thirds of Renesas Electronics Corp. (6723) as shareholders in the ailing Japanese chipmaker consider the deal, a person with knowledge of the plan said.

Renesas’s three biggest shareholders -- Mitsubishi Electric (6503) Corp., NEC Corp. (6701) and Hitachi Ltd. -- are close to agreeing on a stake sale to Innovation Network Corp. of Japan, the person said, asking not to be named because negotiations aren’t public. Eight companies, including Toyota Motor Corp. (7203), will invest more than 10 billion yen total for minority stakes under the proposal, which could still change, the person said.

Renesas shares surged 17 percent on the plan, which the Nikkei newspaper reported earlier today would be announced next month. The supplier to Apple Inc. (AAPL) and Nintendo Co. is cutting jobs and considering closing or selling plants to recover from losses as demand drops for its system LSI chips, used for functions including processing TV images.

“An investment by the fund would be good for both Renesas and suppliers in the short term,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo-based hedge fund. “It would help prevent a loss of technology.”

Photographer: Kiyoshi Ota/Bloomberg

The company is cutting production of system chips because of falling sales of the product used in televisions, mobile phones and personal computers. Close

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Photographer: Kiyoshi Ota/Bloomberg

The company is cutting production of system chips because of falling sales of the product used in televisions, mobile phones and personal computers.

The company would eliminate as many as 5,000 positions and shut more factories under INCJ’s proposal, the person said.

Mitsubishi Electric

Renesas wasn’t the source of the Nikkei report, Yoichi Kobayashi, a spokesman for the Kawasaki-based company, said today. A spokeswoman for INCJ declined to comment on the report and asked not to be named, citing the organization’s policy.

A Mitsubishi Electric spokesman said nothing has been decided and asked not to be named, citing the company’s policy. Takehiko Kato, a spokesman for NEC, and Atsushi Konno, a spokesman for Hitachi (6501), said nothing has been decided.

Renesas closed 17 percent higher at 337 yen in Tokyo trading, the biggest gain in two months. Today’s gain trimmed the decline of Renesas this year to 28 percent, compared with an 11 percent increase for Japan’s benchmark Nikkei 225 Stock Average.

Mitsubishi Electric, Hitachi and NEC -- which together hold more than 90 percent of Renesas -- will become minority shareholders after the investment, the Nikkei reported, without saying where it got the information. Mitsubishi will accept a few hundred workers under the agreement while NEC and Hitachi will pay Renesas about 1 billion yen each to fund an early- retirement plan, the report said.

Toyota, Panasonic

INCJ was formed in 2009 to invest in companies that support Japanese industry and has spent about 400 billion yen on 29 projects, according to its website.

The fund took a 70 percent stake in the liquid-crystal- display venture formed this year by Sony Corp., Toshiba Corp. and Hitachi Ltd., and it spent $680 million for a 40 percent stake in Landis+Gyr AG, a Swiss electronic-meter company majority-owned by Toshiba.

Renesas is a key supplier to Japan’s automakers as the world’s largest maker of microcontrollers, with a 27 percent market share last year. It has lost 177.6 billion yen since its formation in 2010 by the merger of money-losing chipmakers Renesas Technology Corp., a venture between Hitachi and Mitsubishi Electric, and NEC Electronics Corp.

Eight companies will invest more than 10 billion yen combined for minority stakes in Renesas, the person with knowledge of the INCJ plan said. The Nikkei said Panasonic Corp. (6752), Nissan Motor Co., Denso Corp. (6902), Keihin Corp. (7251), Canon Inc. (7751), Nikon Corp. (7731) and Yaskawa Electric Corp. (6506) also will invest.

Earthquake Halt

Renesas is increasing its focus on microcontrollers, used in cars and TVs, as it tries to post its first annual profit since being set up in 2010. The business, which accounted for 43 percent of Renesas’s sales last fiscal year, has an operating profit margin of at least 10 percent, the company said in June.

A production halt at Renesas’s main factory because of the March 11, 2011, earthquake in Japan forced automakers to shut production because of a lack of parts. Renesas’s share of microcontrollers used to run systems including airbags and brakes was 42 percent last year, according to IHS iSuppli. It competes with Freescale Semiconductor Ltd. (FSL) and Infineon Technologies AG in the market.

The company is cutting production of system chips because of falling sales for the product used in TVs, mobile phones and personal computers, Renesas has said.

Renesas’s net loss may widen to 150 billion yen for the year ending March 31 from 62.6 billion yen a year earlier, the company predicted Oct. 29. Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, may be 21 billion yen for the 12 months ending March 31, compared with a loss of 56.8 billion yen a year earlier, Renesas said.

The chipmaker said Oct. 16 it booked a one-time charge of about 84 billion yen to cut about 7,500 jobs. The company employed 42,800 as of March 31, according to data compiled by Bloomberg.

The manufacturer, with 18 factories in Japan, also plans to sell its Renesas High Components Inc. subsidiary to Aoi Electronic Co. (6832) in January, it said Oct. 12.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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