FINANCIAL TIMES




 

 

State-backed fund’s buyout of semiconductor equipment maker gives the government more grip on industry

A leading Japanese semiconductor equipment maker has accepted a $6.4bn buyout offer from a state-backed fund in what investors have described as a “stunning” act of government intervention in the country’s chip industry.

JSR’s announcement followed a board meeting on Monday to discuss the proposal from the Japan Investment Corporation, a government-backed fund overseen by Japan’s Ministry of Economy, Trade and Industry.

The move is being seen as a signal from the ministry that it plans to be directly involved in supporting companies that play an important role in national policy. The deal would value JSR at ¥909.3bn ($6.35bn), representing a significant premium over JSR’s market capitalisation of $4.7bn at Friday’s close.

The company’s shares rose as much as 22 per cent in Tokyo on Monday ahead of the announcement and following a leak to local media. In a press conference on Monday evening, JSR’s US chief executive, Eric Johnson, said the company had for some time identified a “strategic imperative” to restructure the company as competitors consolidate and as research and development costs increase.

He added that within the area of semiconductor materials, there had been difficulty finding partners. As a government-backed fund, said Johnson, JIC could create momentum for reform of JSR and the industry as a whole.

“This is an opportunity. It’s not a crisis we are trying to solve,” he said, adding: “Now is the time to push ahead with well-structured reforms to allow us to compete globally.”

The Japanese government has been going to greater lengths in its attempts to protect and nurture the nation’s semiconductor industry, as the US and China square off in intensifying “chip wars” through increasingly aggressive moves on industrial policy.

Tokyo-based JSR has a 30 per cent global market share in photoresists, the chemicals used for the process of printing circuit designs on chip wafers and a technology in which Japan retains an edge. JSR counts Intel, Samsung and Taiwan’s TSMC among its customers.

Government officials have highlighted the company’s importance in Japan’s industrial policy as the country seeks to revive its semiconductor industry to shore up economic security and supply chains for critical technology. But a Japanese trade ministry official said the government was not intervening in the management of a listed company, noting that the talks were initiated by JSR.

Damian Thong, a semiconductors analyst at Macquarie in Tokyo, said JIC’s entry as the buyer of a profitable company was consistent with a changing role for funds acting under the trade ministry. “The government has gone from bailing out failures to backing successes,” said Thong.

A fund manager whose Japan investments include a stake in JSR said: “This deal appears to have come out of nowhere, and it is going to be very interesting to hear how the government justifies pumping taxpayers’ money into a profitable company.

If we are looking at some new era of interventionism, that is a stunning way to go.” Under the proposed deal, JIC would launch a ¥4,350-per-share tender offer in December. Banks led by Mizuho and the Development Bank of Japan would provide financing.

Mizuho, which already ranks among JSR’s 10 biggest shareholders, declined to comment. JIC also declined to comment. JSR’s largest shareholder is the US activist fund ValueAct, which holds a stake of about 9 per cent and has previously held major positions in Olympus and Seven & i Holdings.

In 2021, ValueAct was successful in proposing a partner, Robert Hale, for the board. JSR said at the time that Hale would “help the company in making critical strategic decisions” and people close to the company said ValueAct had since worked behind the scenes to discuss a variety of strategic issues with management.

ValueAct said on Monday it supported the JIC bid, adding that the deal was aligned with JSR’s strategy of focusing on becoming a global champion in semiconductor, display and life science technologies.