Private equity firm KKR is planning to significantly reduce its stake in Kokusai Electric, a move that comes after a period of substantial growth for the Japanese chip equipment manufacturer’s shares. According to two sources familiar with the situation, KKR aims to capitalize on the recent surge in Kokusai’s stock price. The firm currently holds approximately 43% of Kokusai’s shares but intends to sell about half of its stake to investors, as stated by one of the sources. Furthermore, Kokusai is expected to repurchase shares in the market, another source mentioned.
KKR’s decision to trim its holdings follows a remarkable performance by Kokusai Electric, whose shares have roughly tripled since its initial public offering (IPO) in October. This significant appreciation has been driven by robust demand for chip equipment, underscored by the pivotal role of semiconductors in technological advancements, including artificial intelligence (AI).
Kokusai, a former part of Hitachi Kokusai Electric, was spun out in 2018. The company has since been a critical example of private equity’s influence in Japan, where conglomerates are divesting non-core assets and several companies are transitioning to private ownership.
Kokusai Electric has reported impressive financial results and has ambitious medium-term targets. In the fiscal year ended March, the company achieved sales of 181 billion yen ($1.12 billion). Moving forward, Kokusai aims to reach sales of 330 billion yen or more and an adjusted operating margin of 30% or higher.
| Metric | Value |
|---|---|
| Current Sales | 181 billion yen ($1.12 billion) |
| Medium-term Sales Target | 330 billion yen |
| Adjusted Operating Margin Target | 30% or more |
In 2019, KKR attempted to sell Kokusai Electric to U.S. chip competitor Applied Materials (AMAT.O). However, this deal was aborted due to the failure to secure regulatory approval from China. Despite this setback, Applied Materials still maintains a 15% stake in Kokusai Electric. Kokusai also competes with Tokyo Electron (8035.T), whose shares have risen nearly 50% year-to-date. Analysts suggest there is potential for further expansion in the logic segment for Kokusai, particularly as it remains exposed to the memory sector.
- Stake Reduction: KKR plans to sell about half of its 43% stake in Kokusai Electric.
- Share Repurchase: Kokusai Electric will buy back shares in the market.
- Impressive Growth: Kokusai’s shares have tripled since its IPO in October 2018.
- Financial Targets: The company aims for sales of 330 billion yen and an adjusted operating margin of 30% or more.
- Previous Sale Attempt: KKR’s attempt to sell Kokusai to Applied Materials failed due to regulatory issues in China.
KKR’s move to sell a portion of its stake is seen as a strategic maneuver to cash in on the significant value appreciation of Kokusai’s shares. The firm’s initial investment has paid off handsomely, reflecting the booming demand for chip-making equipment and the strategic shedding of non-core assets by Japanese conglomerates.
Despite declining to comment on the transaction, both KKR and Kokusai Electric are poised to benefit from this decision. The buyback of shares by Kokusai is expected to support its stock price, ensuring stability and confidence among existing and prospective investors.
The semiconductor industry has been on an upswing, driven by the crucial role of chips in powering technological innovations. The global push towards AI, Internet of Things (IoT), and other advanced technologies has spurred demand for sophisticated chip equipment. Kokusai Electric, specializing in deposition equipment, is well-positioned to capitalize on these trends.
The company’s competitors, including Tokyo Electron, are also experiencing significant growth, reflecting the overall positive sentiment in the semiconductor equipment market. This competitive landscape underscores the strategic importance of Kokusai’s expansion plans and its focus on the lucrative memory and logic sectors.
Looking ahead, Kokusai Electric’s medium-term targets indicate a strong growth trajectory. The company’s commitment to achieving substantial sales and high operating margins reflects its confidence in the sustained demand for chip-making equipment. With a robust market position and strategic support from investors like KKR, Kokusai is set to navigate the competitive landscape effectively.
In conclusion, KKR’s plan to reduce its stake in Kokusai Electric is a calculated move to realize gains from a highly successful investment. The transaction will likely have positive implications for both KKR and Kokusai, reinforcing the latter’s market position and financial health. As the semiconductor industry continues to grow, Kokusai Electric remains a key player, driving innovation and supporting the global tech ecosystem.
Featured Image courtesy of Krugman Insights