The Nikkei and Jiji Press reported on Sept. 22/23 that a joint private-/public sector rescue fund is investigating the possibility of taking over Renesas Technology (TYO:6723).

Renesas Technology

Reports said: (1) the rescue fund would include the public-sector Innovation Network Corporation of Japan and such private companies as Toyota Motor Corporation (NYSE:TM) (TYO:7203),  Nissan Motor Co., Ltd. (PINK:NSANY)., Honda Motor Co Ltd (NYSE:HMC) (TYO:7267), Canon Inc. (NYSE:CAJ) (TYO:7751), and Panasonic Corporation (NYSE:PC) (TYO:6752), which would invest significantly more than ¥100 bn to take a majority share in Renesas Electronics Corporation (TYO:6723) before the end of the year (the rescue fund is expected to make a formal announcement before the end of October); and (2) the bid is meant to counter the acquisition proposal put forward by the US fund KKR & Co. L.P. (NYSE:KKR); and (3) the Japanese rescue fund is intended to protect Japan from losing its own technology and counter concerns over a rise in MCU prices.

This report has not yet been confirmed. Generally speaking, the expected rate of return on an investment by a public/private fund is lower than for a purely private fund rescue, and public/private funds tend to demand less downside protection. The Nikkei report said that KKR is demanding the resignation of the entire Renesas board, further headcount reductions, and extended lending by the three parent companies. If the support conditions of the public/private fund are in line with media reports, they could be easier for Renesas Technology  to accept that the KKR & Co. L.P. (NYSE:KKR) demands.

Even if auto-related and consumer electronics maker customers alongside the INCJ were to consider becoming shareholders as reported, executing on restructuring as outlined in the plan would be essential for Renesas Technology . Caution would be required to ensure that unprofitable SoC which need to be revamped are not preserved out of consideration for the products of
companies that become shareholders, for example.

Goldman Sachs (NYSE:GS) notes:

We also note the possibility of a conflict of interests between major shareholders if Renesas Electronics Corporation (TYO:6723)’s main clients become shareholders. There is also still a possibility it will be subject to TSE delisting criteria (less than 5% liquidity). We think Renesas Electronics Corporation (TYO:6723) shares could react positively in the near term to this news, but various reports are using the term “acquire” and we think there may be some misunderstanding that “acquire” means tender offer. The share price rebounded even immediately after media reported on a projected KKR & Co. L.P. (NYSE:KKR) offer on Aug. 29, which we think was due to some investor misunderstanding.

(Disclosure: no positions in any securities mentioned)