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

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Japanese semiconductor equipment maker JSR has received a multibillion-dollar buyout offer from a state-backed fund, in what investors have 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 the 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 offer would represent a significant premium over JSR’s market capitalisation of $4.7bn at Friday’s close. Its shares rose as much as 22 per cent in Monday afternoon trading in Tokyo on the news.

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 the emerging “chip wars” through increasingly aggressive moves on industrial policy.

Tokyo-based JSR has a 30 per cent global market share in photoresists, 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 to shore up economic security and supply chains for critical technology.

People close to the deal said JSR might be seeking the involvement of a government-backed fund as the company looked to streamline non-core divisions to focus on the expansion of its main photoresist business. They also cautioned that the company would be studying multiple options in addition to a buyout by JIC.

One trade ministry official said deal negotiations were being led by JSR rather than JIC.

Damian Thong, a semiconductors analyst at Macquarie in Tokyo, said the potential for JIC to enter 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.

One person close to JSR’s senior management said the proposed deal had come out of the blue to some top executives and did not appear to have been led by JSR itself.

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.”

The deal as currently proposed would see JIC creating a new company with at least $3bn of capital injected by JIC itself, according to one person familiar with the situation. Banks led by Mizuho will provide at least $2.5bn in 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.

JSR is unusual among Japanese companies in having 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 vital role.

He said he wanted to balance being able to “respectfully” and “responsibly” service customers in China with “sensitivity to the concerns that the US government has and concerns with protecting interests in Japan”.