Japanese chip player JSR gets buyout offer from state-backed fund

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Japanese semiconductor equipment maker JSR has received a billion-dollar buyout offer from a state-backed fund, in what investors described as a potentially “stunning” act of government intervention in the country’s chip industry.

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

The proposed deal would value the company at as much as ¥1tn ($7bn), said two people familiar with the situation. The offering will represent a significant premium over JSR’s market capitalization of $4.7 billion at Friday’s close. Its shares soared up to 22 percent in midday trading in Tokyo on Monday on the news.

The Japanese government is putting more and more effort into its efforts to protect and nurture the country’s semiconductor industry, as the US and China face off in an emerging “chip war” through increasingly aggressive moves on industrial policy.

Tokyo-based JSR has a global market share of 30 percent in photoresist, chemicals used for the process of printing circuit designs on chip wafers. It 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 for economic security and strengthen supply chains for critical technology.

People close to the deal said JSR may seek the participation of a government-backed fund as the company seeks to streamline non-core divisions to focus on expansion of its core photoresist business. He also cautioned that the company would study various options other than the buyout by JIC.

A trade ministry official said the deal talks are being led by JSR instead of JIC.

Damian Thong, semiconductors analyst at Macquarie in Tokyo, said the potential for JIC to enter as a buyer of a profitable company was in line with the changing role of funds operating under the trade ministry.

Thong said, “The government has moved from defending failures to supporting successes.”

A person close to JSR’s senior management said the proposed deal came as a surprise to some top executives and did not appear to be led by JSR itself.

A fund manager, whose Japan investments also include a stake in JSR, said: “This deal appears to have come out of nowhere, and it will be very interesting to hear that the government will invest taxpayers’ money in a profitable company. How does it justify If we’re looking at a new era of interventionism, it’s a wonderful approach.”

According to a person familiar with the situation, under the currently proposed deal, JIC would create a new company in which at least $3 billion would be infused by JIC. Banks led by Mizuho will provide at least $2.5 billion in financing. Mizuho, ​​already one of JSR’s 10 largest shareholders, declined to comment. JIC also declined to comment.

JSR’s largest shareholder is US activist fund ValueAct, which holds around 9 percent and has previously held key positions at Olympus and Seven & I Holdings.

In 2021, Valueact succeeded in proposing Robert Hale, a partner, to the board. JSR said at the time that Hale would “assist the company in making important strategic decisions” and people close to the company said that Valueact worked behind the scenes to discuss various strategic issues with management.

It is unusual among Japanese companies in JSR to have a foreign chief executive, Eric Johnson, an American.

In an interview with the Financial Times last year, Johnson cast doubt on whether China would be able to master the sophisticated chipmaking technology in which JSR’s products play a key role.

He said he wanted to strike a balance between being able to “respectfully” and “responsibly” serve customers in China, as well as “sensitivity to the concerns of the US government and concerns about protecting interests in Japan.”