Infineon eyed by KKR, Silver Lake,CVC

Infineon is said to have been approached by three private equity funds, KKR, Silver Lake and CVC Partners about a possible private equity buy out, adding to fears that Europe's semiconductor industry is about to be decimated by US private equity funds which are intent on turning a quick profit by buying them up, stripping them of their most valuable assets, and selling them on as very much weakened companies.

First a private equity consortium, led by KKR, buys NXP Semiconductors (formerly Philips Semiconductors) which, a month or two later, pulls out of Europe’s top microelectronics R&D consortium Crolles.

Then another private equity consortium led by Blackstone, buys Freescale, not a European company but a key partner in Crolles. A month or two later, Freescale says it’s going to IBM for its microelectronics R&D, and the writing is on the wall for the future of its involvement in Crolles.

STMicroelectronics, faced with the choice of funding Crolles 100% (less the government subsidies) or pulling out, then also pulls out.

And that’s pretty much the end of Crolles’ future as a leading edge microelectronics process R&D establishment.

Now, it appears, that Europe’s second largest semiconductor company, Infineon has been approached by several private equity funds with a view to taking over the company and has, so far, been told ‘nothing doing’ by the Infineon management.

The fear in Germany is that the approaches of the private equity people might turn from being friendly, to being hostile. That will send a shiver down a lot of German spines – both management spines and union spines.

German companies are seen as cosy places to work, by international standards, and hostile takeovers are extremely rare in Germany. Moreover the German unions have long been seen as a big obstacle to any hostile takeover bid succeeding.

If a hostile takeover was launched in Germany, and if it succeeded, the whole of German industry might come under the unwelcome scrutiny of the private equity people.

And the private equity funds are primed with mega-bucks and thirsting for prey. Goldman Sachs is said to have made a 42 per cent return on its private equity investments in the last seven years, and has just raised a $19bn fund to finance more takeovers.

KKR and Blackstone are each said to be about to close two new $20bn funds, each of which are earmarked for company acquisitions. Texas Pacific is said to have a $15bn fund, and Bain Capital a $10bn fund.

One thing which may stop the private equity funds in their headlong rampage through Europe, is the chance that the UK unions may get the government to remove the tax concession which allows private equity funds to set against tax the interest on the vast loans it imposes on the companies it buys.

Well-known UK venture capitalist, Jon Moulton, was on the airwaves yesterday saying that removing this tax concession might force the private equity companies to go and do their private equity-ing somewhere else.

Sounds like a good idea to me.