State-backed fund presents buyout offer to Japanese chip player JSR

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A state-backed fund has offered to buy out Japanese semiconductor equipment maker JSR in a potentially significant move by the government to intervene in the country’s chip industry. JSR’s board is set to discuss the proposal from the Japan Investment Corporation, a government-backed fund overseen by Japan’s Ministry of Economy, Trade and Industry. Valued at up to ¥1tn ($7bn), the offer represents a premium over JSR’s market capitalisation of $4.7bn. The government aims to protect and bolster Japan’s semiconductor industry amid escalating tensions between the US and China.

JSR is a leading global provider of photoresists, which are used in the process of printing circuit designs on chip wafers. The company’s customers include Intel, Samsung, and Taiwan’s TSMC. The Japanese government views JSR as crucial in its efforts to revive the semiconductor industry to ensure economic security and strengthen supply chains for critical technology.

JSR may be considering the involvement of a government-backed fund to streamline non-core divisions and focus on expanding its primary photoresist business. However, it is also exploring other options besides the buyout by the Japan Investment Corporation. Negotiations for the deal are being led by JSR rather than the government-backed fund.

Damian Thong, a Tokyo-based semiconductors analyst at Macquarie, suggests that the potential purchase of a profitable company by the Japan Investment Corporation aligns with the changing role of funds under the trade ministry. Thong states that the government has shifted from bailing out failing companies to supporting successful ones.

The proposed deal has surprised some top executives at JSR, who believe it was not led by the company itself. A fund manager with investments in JSR questions the government’s justification for injecting taxpayers’ money into a profitable company, suggesting that this intervention may mark the beginning of a new era of government involvement in the private sector.

If the deal proceeds, the Japan Investment Corporation will create a new company with $3bn of capital injected by the fund. Mizuho-led banks will provide at least $2.5bn in financing. Mizuho, already one of JSR’s top 10 shareholders, declined to comment, as did the Japan Investment Corporation.

US activist fund ValueAct, which holds about 9% stake in JSR, is its largest shareholder. In 2021, ValueAct successfully proposed a board member, Robert Hale, to assist with strategic decision-making. JSR’s foreign chief executive, Eric Johnson, expressed skepticism about China’s ability to master the chipmaking technology that relies on JSR’s products. Johnson aims to balance serving customers in China with the concerns of the US government and the need to protect Japanese interests.