Fujitsu's $4.8B Chip Packaging Sale to JIC

In a recent corporate development, Fujitsu has announced its strategic decision to divest its chip packaging subsidiary, Shinko Electric Industries, a publicly listed entity on the Tokyo Stock Exchange. This move is part of Fujitsu's ongoing initiative to streamline its operations, focusing on its core IT business. The company has reached an agreement to sell Shinko Electric Industries to a consortium led by the Japan Investment Corporation (JIC) for a significant amount of 700 billion yen (48 billion USD).

The JIC consortium, comprising key players such as DNP and Mitsui Chemicals, plans to initiate a tender offer for Fujitsu's outstanding shares in late August, subject to regulatory approval. The offer is set at 5,920 yen per share, representing a 13% premium over Monday's closing price. Shinko Electric Industries has expressed its endorsement of the transaction and has recommended that shareholders consider accepting the offer.

Concurrently, the JIC consortium will acquire a 50% stake in Fujitsu through a separate transaction. This two-fold strategy will ultimately lead to the privatization of Shinko Electric Industries, with JIC holding 80% ownership, DNP holding 15%, and Mitsui Chemicals holding 5%.

The decision aligns with Fujitsu's commitment to optimizing its portfolio, as evidenced by previous divestitures, such as the sale of its mobile devices and personal computer (PC) business in 2018 and the divestiture of its scanner business in 2022.

Takeshi Isobe, Chief Financial Officer of Fujitsu, elucidated the rationale behind this strategic restructuring, emphasizing the company's focus on IT services as its core business. The separation of non-core entities is intended to facilitate resource allocation for enhanced individual growth.

Successful completion of this restructuring is anticipated to garner a positive response from investors, potentially reshaping market perceptions of Fujitsu amid intensified competition in the IT industry. Despite historical leadership in the Japanese IT market, Fujitsu was surpassed by NTT Data Group in the April to June quarter of this year.

Fujitsu's operating profit margin, currently at 9%, lags behind industry peers such as Nomura Research Institute and Accenture. In contrast to competitors primarily concentrated in the IT sector, Fujitsu's diverse resource allocation spans various manufacturing-related businesses within a corporate group structure.

Additionally, Fujitsu faces governance challenges, with recurrent system and service issues. Despite a major system failure in 2020 leading to a temporary trading halt on the Tokyo Stock Exchange, the company has yet to implement fundamental changes to address these concerns.

Simultaneously, amid escalating competition in the chip packaging industry, Shinko Electric Industries, under JIC's ownership, is poised to focus on developing cutting-edge packaging substrates and expanding production facilities.

Shinko Electric Industries, listed on the Prime Market of the Tokyo Stock Exchange with an estimated valuation of around 7.5 trillion yen, currently holds the rank of the world's fourth-largest semiconductor packaging company in 2023, boasting a 9.2% global market share, according to Techno Systems Research data.

JIC remains committed to driving structural reforms in the industry, enhancing international competitiveness, and leveraging the Shinko Electric Industries transaction to fortify the supply chain on a broader scale.