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Japan Aims to Rescue its Own, Struggling Renesas

by Daniel Mandell | 09/30/2012

Renesas Electronics has faced many challenges over the last two years and struggles to keep its head above water. Environmental disasters, dismal economic conditions and pressure from overseas competitors have plagued the company – effectively sinking corporate revenues year over year. However, a white knight has risen to restore the struggling MCU manufacturer and it seems as though Renesas will remain a Japanese powerhouse.

The financial issues Renesas faces result from a wide array of problems, most of which were outside of the company’s control. The Tohoku Pacific coast earthquake in March 2011 impacted several semiconductor suppliers and halted production at Renesas’ Naka factory for several months. Sharp appreciation of the Yen and a lagging semiconductor industry only made matters worse in a slowing global economy. After major shareholders rejected to inject fresh capital earlier this year, the company was frantically looking for a way out.

However, the company’s value as the leading global embedded MCU supplier has others eyeing the situation as a unique opportunity to assume leadership of the market. Renesas’ microcontrollers are pivotal to several major automobile manufacturers in the region and losing the company to foreign investors would be costly. That’s why it comes as little surprise that a Japanese public-private consortium has been established to preserve the Japanese roots of the MCU manufacturer in response to a bid by American private equity investor Kohlberg Kravis Roberts & Co. (KKR). The consortium, comprised of Toyota Motor, Panasonic and a Japanese government-backed fund called the Innovation Network Corporation of Japan, may invest upwards of 100 billion yen with plans to buy a majority stake in Renesas by the end of this year.

Many in Japan fear that if KKR were to come away with this deal, then they would have control of a vital technology to the Japanese auto industry. The bid by KKR is believed by many to be valued around the 100 billion yen mark as well, but we believe that cultural barriers and government influence will sway this deal in the consortium’s favor. At any rate, Renesas shares have soared on the Tokyo Stock Exchange from the investment interest and possibility of a bidding war. Much of Japan’s economic and industrial future remains undecided, leaving the country understandably little choice in rescuing the ailing Renesas.

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