Bain sought $10 bln valuation for Japan's Kioxia, investors only wanted to pay half

Western Digital

14/10/2024 01:14

(Repeats item published on Friday)

        * 
      Bain scrapped plans for October IPO for Kioxia
    

        * 
      Investors were concerned over memory market strength, say
sources
    

        * 
      Valuation gap complicates Bain's efforts to list the
chipmaker 
    

  
    By Miho Uranaka and Sam Nussey
       TOKYO, Oct 11 (Reuters) - Investors pushed Bain Capital
to almost halve the valuation it was seeking for Japan's Kioxia
in an IPO, leading the U.S. buyout firm to scrap its plans for
an October listing of the memory chipmaker, two sources said. 
    Kioxia, known as Toshiba Memory when it was acquired from
Toshiba by a Bain-led consortium in 2018 for 2 trillion yen
($13.4 billion), ditched the October IPO plan, Reuters reported
last month, citing sources.
    That decision came after global investors wanted a market
value of around 800 billion yen for the chipmaker, said the two
sources, compared to Bain's target of 1.5 trillion yen. 
    The valuation gap complicates the buyout firm's effort to
exit its six-year-old investment in Kioxia. It reflects concerns
investors have over the strength of the memory chip market, the
sources said. 
    Details of the valuation sought by investors, who met with
Kioxia in August and September, have not been reported
previously. 
    "An IPO this year looks difficult given NAND market
conditions although it may be possible by the end of the
financial year," said a fund manager at an Asian hedge fund who
met with Kioxia, referring to the memory chips in which Kioxia
specialises.
    Kioxia has undergone years of upheaval, including its
carve-out from scandal-hit Toshiba and stalled merger
negotiations with partner Western Digital  WDC.O  due to
opposition from investor SK Hynix  000660.KS . 
    Memory chipmakers have been hit by lacklustre demand for
smartphones and PCs, with Kioxia also facing tough competition
from South Korean and U.S. rivals.
    While NAND prices have improved this year due to the spread
of artificial intelligence, price rises have plateaued, said
Akira Minamikawa, senior analyst at Omdia. 
    The implementation of AI in smartphones and PCs is expected
to drive replacement demand next year onwards, he said. 
    Kioxia is focused on NAND flash memory, which it invented in
the 1980s. SK Hynix, by contrast, also makes DRAM chips and is
in the ascendant due to demand for its high bandwidth memory
used in AI tasks.
    "I don't want to buy shares when the NAND market is peaking
out in the short term," said a portfolio manager at a Western
fund who met with Kioxia. 
    The sources declined to be named as the information is not
public. 
    Bain declined to comment. Kioxia did not respond to a
request for comment. 
    
    EXIT TIMING 
    The Japanese stock market has been volatile following a
surprise rate hike and change of Prime Minister. The benchmark
index  .N225  is up 18% year-to-date. 
    The attempt to list Kioxia is closely watched as a test case
for buyout firms in Japan where more companies are selling
non-core assets or going private.
    "Private equity usually does not buy semiconductor
companies, because capital needs are high, and finessing the
timing of exit is hard given the industry cycle," said Damian
Thong, head of Japan research at Macquarie Capital Securities.
    The Japanese government, which hopes to revive its
once-mighty semiconductor industry, has pledged to extend
subsidies totalling as much as 242.9 billion yen to Kioxia and
Western Digital to expand production in Mie and Iwate
prefectures. 
    Kioxia is important due to its location in Japan and as a
source of memory chips for AI, a government source said. 
    "It would be reasonable to have Kioxia IPO at a lower
valuation first, and let the true value be discovered as it
rerates in the market," said Macquarie's Thong. 
($1 = 149.2500 yen)

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Memory Maker    https://reut.rs/4eNC1xZ
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 (Reporting by Miho Uranaka and Sam Nussey; Additional reporting
by Kane Wu, Summer Zhen and Maki Shiraki; Editing by Muralikumar
Anantharaman)
 ((sam.nussey@tr.com;))