Japan’s overseas tech deal crosses financial wires

Altium

15/02/2024 12:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Antony Currie
       MELBOURNE, Feb 15 (Reuters Breakingviews) - What's a CEO
to do after rejecting a takeover offer sporting a high premium
for his own shareholders and terrible returns for the wannabe
new owner? Altium  ALU.AX  boss Aram Mirkazemi has just provided
an answer: grow the business and wait for another
outlandish-looking bid to come along.
    On Thursday the California-based, Australia-listed company,
which creates software used to design circuit boards for all
manner of electronic devices, revealed it had agreed to sell
itself to Japan's Renesas Electronics  6723.T  for A$9.1 billion
($5.9 billion). That's almost 80% more than what Autodesk
 ADSK.O  fruitlessly put on the table some two-and-a-half years
ago.
    Since rebuffing the offer, Mirkazemi has focused on building
Altium's cloud subscription strategy. Revenue for the 12 months
to the end of June is expected to hit $320 million, per LSEG
data, up 67% since 2021. That success doesn't justify the new
price tag, however. 
    Renesas is paying a $1.5 billion premium, 34% above Altium's
undisturbed share price. But covering that outlay would require
lopping off around $200 million of operating expenses - more
than the target spent in its most recent financial year.
     Altium's bulked-up earnings before interest and tax (EBIT)
doesn't provide the suitor much juice either. Those are set to
be $106 million this financial year. Tax that at the 25% rate
the company tends to pay and divide by the $5.7 billion the
offer values the enterprise at, and Renesas' return on
investment would be 1.4% - a tad higher than Autodesk would have
generated.
    Even with EBIT expected to grow by more than two-fifths over
the next two years, the return would barely squeak above 2%.
That's even worse than the lowly 5% Japan's Nippon Steel
 5401.T  is likely to generate if its agreed offer for U.S.
Steel  X.N  succeeds: Donald Trump has pledged to block the
takeover if he retakes the White House. 
    Renesas' deal fits the bill of Japanese overseas
acquisitions that have struggled to deliver value, not least
Takeda Pharmaceutical's  4502.T  $62 billion purchase of Shire
in 2019. Yet the march overseas continues, and it's easy to see
why. The world's third-biggest economy unexpectedly slipped into
recession on Thursday, casting a cloud over the central bank's
plans to exit its ultra-easy policy in the coming months. 
   Renesas boss Hidetoshi Shibata would ideally find a way to
supercharge Altium's revenue, but it may not be the only thing
on his mind. 
    Follow @AntonyMCurrie on X
         
    CONTEXT NEWS 
    Renesas Electronics on Feb. 15 said it has agreed to buy
Australian-listed electronics design company Altium for A$9.1
billion ($5.9 billion) in cash. The A$68.50-per-share offer is a
34% premium to the target's closing price on Feb. 14. 

 (Editing by Una Galani and Katrina Hamlin)
 ((For previous columns by the author, Reuters customers can
click on  CURRIE/ 
antony.currie@thomsonreuters.com; Reuters Messaging:
antony.currie.thomsonreuters.com@reuters.net))