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KKR To Invest $1.27 Billion In Ailing Renesas

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Kohlberg Kravis Roberts & Co. has decided to take over the management of Renesas Electronics Corp.

In the first quarter of 2012, the firm dropped a place in the global semiconductor revenue rankings to 7th according to IC Insights. What's more, in the second quarter of this year, Renesas saw a slump in revenues, like many other Japanese suppliers and came 8th in terms of IHS iSuppli's revenue ratings in the semiconductor chip market.

According to IHS iSuppli, the expectation is that Japanese suppliers will see a rebound in their revenues in the quarter ending in September 2012.

To cut costs, Renesas plans to undertake major restructuring, including the elimination of up to 14,000 jobs - or roughly 30 percent of its workforce - and shutting or selling nine domestic plants within three years. It is expected to book an extraordinary loss of Y150 billion ($1.91 billion)for the current fiscal year through March as it seeks slightly more than 5,000 volunteers for early retirement and closes down some facilities.

Now U.S. investment fund KKR intends to  spend  Y100 billion ($1.27 billion) on a private placement of new shares from the struggling chipmaker, The Nikkei reported in its Wednesday morning edition.

The fund presented its proposal to Renesas' top three shareholders - NEC Corp., Hitachi Ltd. and Mitsubishi Electric Corp. , as well as the chipmaker's main banks. It hopes to reach a formal agreement as early as next month.

Although the investment from KKR would sharply boost the firm's capital base, the move could allow U.S. headquartered firms Broadcom  and Micron, to overtake Renesas in chip revenues.

Renesas has a market capitalisation of about Y95 billion ($1.21 billion). KKR aims to lead the chipmaker's turnaround efforts by taking a majority stake by the end of the year.

The three shareholders have already agreed to provide a total of Y50 billion ($0.63 billion) through loans and other measures. And Bank of Tokyo-Mitsubishi UFJ and three other lenders intend to provide Y50 billion through a credit line. Now that it appears that financing will not pose an immediate problem, Renesas will be able to accelerate rehabilitation efforts, including spinning off its system chip operations.
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