Renesas in a $ 6.7 billion deal for IDT to boost chips for autonomous cars

TOKYO (Reuters) – The Japanese company Renesas Electronics Corp. (6723.T) stated that it had agreed to purchase Integrated Device Technology Inc (IDT) (IDTI.O) for $ 6.7 billion, its second major acquisition as it strengthens its presence in semiconductors for autonomous cars.

US chip design agreement highlights fierce competition among global chip makers as they seek to expand their product offering and market share in the highly lucrative automotive chip business .

Renesas is second after NXP Semiconductors NV (NXPI.O) in self-controlled chips and represents 30% of the global market for microcontrollers used in cars. But it is weak in so-called analog chips that process signals such as sound, light or temperature in digital data.

In particular, Renesas focused on IDT's expertise in analog semiconductors for wireless networks and sensors – an essential expertise for developing autonomous driving and connected car technology.

He will pay $ 49 per share in cash for the outstanding shares of IDT, a premium of 16% over their closing price on Monday.

"We had few chips for the wireless networks needed for the Internet of Things and connected cars. We wanted to get such assets, "Renesas general manager Bunsei Kure told a news conference.

Renesas said that the combination with IDT will allow the Japanese company to provide more complete chip systems to its customers. IDT is also strong in data center chips, opening a new revenue stream for Renesas.

The Renesas share rose 4% in the afternoon, regaining some lost ground with a 14% drop since the Japanese firm considered acquiring the IDT on August 31st.

Although IDT has recorded revenue growth of nearly 20 percent on average over the past four quarters, some analysts are concerned that the benefits of the deal are difficult to obtain.

"Renesas is weak in telecommunications chips, so the combination is not bad," said Akira Minamikawa, senior analyst at IHS Markit. "But IDT does not have a lot of automotive customers. Bringing their chips to the level required for auto standards will not be easy.

IDT generates only 11% of its turnover from automotive and industrial companies.

The deal follows the $ 3.2 billion purchase by US chip maker Intersil Corp., which has also expanded its analog chip portfolio.

Companies must obtain approval from the US Committee on Foreign Investment (CFIUS), which reviews agreements on possible national security issues, as well as antitrust authorities in markets such as the United States. China.

Renesas is said to be confident of obtaining the necessary permissions.

Renesas, which expects the transaction to close in the first half of 2019, will finance the acquisition with 679 billion yen ($ 6.1 billion) of bank loans and cash, and plans to repay 200 billion yen each year.

The loan will be offered by the main banks of Mitsubishi UFJ Financial Group Inc (8306.T) and Mizuho Financial Group Inc (8411.T), a source with direct knowledge of the matter told Reuters. The source was not allowed to speak publicly about the issue and refused to be identified.

S & P Global Ratings gave Renesas a negative watch, saying it could reduce the company's rating by one notch if the acquisition goes as planned.

"The key financial ratios of Renesas Electronics would likely deteriorate significantly, even considering the potential contribution of IDT to earnings," S & P said.

Renesas was late for joining a wave of consolidation in the flea industry as he struggled to recover from the damage suffered by major factories during an earthquake that hit Japan in 2011.