White knight or asset stripper?

Reports are coming out of Japan that private equity company Kohlberg Kravis Roberts & Co. (KKR) LP is being asked to invest in struggling Japanese chip company Renesas Electronics Corp. to help it raise more than $1 billion for use executing a major restructuring that could see Renesas cut 30 percent of its workforce.

Renesas Electronics has made losses since it was formed as a merger of the semiconductor interests of NEC and Renesas Technology in 2010. It can be argued that a radical restructuring of the large chipmaker is overdue. Renesas Technology was itself the merger of the chip making interests of Hitachi Ltd. and Mitsubishi Electric. Indeed it can be argued that chip companies in the United States and Europe have already been through their necessary restructuring.

But while Renesas may have been slow to change it has had other challenges to cope with. In the last few years Renesas has endured both physical and financial disasters. The economic bust of 2008-2009, which continues to reverberate globally, was followed by the Great Eastern Japan earthquake and tsunami.

Which leaves the question: is KKR a knight in shining armor riding to the rescue of Renesas? Or is it an asset stripper that will insist that the company is broken up and sold off leaving Japan's national semiconductor champion as a hollow, non-manufacturing shell of the company it could have been?

KKR's has previous form. It was a member of a consortium that paid 6.4 billion euro (about $8 billion) for an 80 percent stake in chip company NXP as it was spun out of Koninklijke Philips Electronics NV (Amsterdam, The Netherlands) in 2006. KKR also put a consortium together to bid for the spin-off of Freescale from its parent Motorola in 2006 but missed out to a consortium led by another private equity firm Blackstone.

The deal KKR did over NXP was not quite the same as appears to be in prospect for Renesas. In the case of NXP, the private equity had a clear majority stake and could dictate terms and how any proceeds of sell offs were used; which was mainly to repay the debt that NXP incurred as part of the original deal. In the Renesas case, as the potential deal has been reported, KKR would receive a leading but minority stake in Renesas.

How you view the prospect of KKR backing Renesas may depend on what sort of job you think they have done supporting NXP.

But now the companies and the banks have little money or appetite to back chip companies it may be that private equity capital is the only way to go. And in such times as these, cash is king and can dictate terms.


Related links and articles:

Renesas seeks $620 million from KKR, says report

Report: Renesas Mobile up for sale in re-org

Report: Renesas closes in on cash for cuts