C'mon You Infineon Shareholders: Keep The Barbarians At Bay

Because the alternative is that Infineon gets controlled, or owned, by a private equity company, Apollo, and a famous book described the most famous member of that ilk as: 'Barbarians'.

More to the point, we've seen the disastrous effects of  private equity ownership on NXP and Freescale whose private equity owners imposed debts of $6 billion and $10 billion respectively on them.

Now, if all goes well, Infineon's shareholders should be able to keep Apollo at bay.But there are unknowns, the principal one of which is: how many Infineon shares Apollo already owns. That could determine whether Apollo gets control of Infineon under this rights issue procedure.

In the announcement of the Infineon rights issue it says:

'Apollo has agreed to provide a backstop for the rights offering relating to new shares not subscribed for. Apollo has committed to acquire at the subscription price up to approximately 326 million new shares not subscribed for, up to a maximum shareholding of 30% minus one share of Infineon's share capital after implementation of the rights issue.'

That's a straightforward underwriting role - if the rights issue isn't taken up by existing shareholders, then the underwriter buys them at the issue price.

So, if existing shareholders don't take up their rights, Apollo would buy shares up to a value of 30% of Infineon minus one share. So far, so good.

Then the announcement it goes on to say:

'This commitment is subject to the condition that Apollo, after implementation of the rights offering, would have a minimum shareholding of 15% of Infineon's share capital. If this minimum shareholding is not achieved, Apollo may, but is not obligated to, acquire all new shares not subscribed for. Apollo's investment is also subject to regulatory approvals.'

That seemed odd to me. After all, if  the existing shareholders take up so many shares that there are not enough shares left for Apollo to buy 15%, then where do these  'new shares not subscribed to' come from?

In other words, why is it necessary to put in this clause about obtaining a 15% shareholding if Apollo has already committed to buy 30% (less one share)?

Well I asked Infineon for an explanation, and they said that the 15% only relates to the minimum number of shares Apollo must buy, assuming the existing shareholders leave at least 15% of their rights unexercised.

If, however, all the rights to the new shares are taken up by existing shareholders, then Apollo gets no shares at all.

That would clearly be the best possible result for Infineon, because, if Apollo does get 15% of the shares, then it all starts to get rather sinister.

The announcement of the offer states:

 'Upon completion of a successful investment representing a shareholding of 15% or more of Infineon's share capital, Apollo will have designated, with the support of Infineon, the chairman of the supervisory board and will obtain a second seat on Infineon's supervisory board thereafter'.

So, when Apollo's got 15% of Infineon's share capital, it can double up its seats on the Infineon board (to two - it gets one seat for a 10% stake) and gets the right to appoint the chairman of the supervisory board.

We all know where that leads. Once that happens, Infineon is well on the way to being controlled by private equity with all the horrors of being asset-stripped and loaded up with debt which private equity ownership traditionally entails.

The unknown element here is: How many shares does Apollo already own? The shares have shot up from 36 Eurocents back in March to €3.50 now - a 10X gain.

Someone's been buying and, if it's Apollo or its nominees, then Apollo could be entitled to a big chunk of the rights issue.

It is understandable that Infineon is doing this. The company needs to raise about a billion to pay off its maturing bonds. It's just a risky way of going about it.

So c'mon all you Infineon shareholders - take up the maximum you can under the rights issue - and keep the Wall Street barbarians at bay.