mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

God Save Renesas From Private Equity

God help Renesas if the asset-strippers get their hands on it.

Word is that American private equity companies KKR and Silverlake, which were part of the consortium which made the ill-fated 2006 takeover did for NXP, are in talks about investing ‘several tens of billions of yen’ in the ailing Japanese chip-maker.

 

If KKR and Silverlake do to Renesas what they did to NXP, then we can expect mass sackings, dismemberment with business unit sell-offs, reduced R&D funding and the imposition of a stupendous debt load.

 

After KKR and Silverlake bought NXP, NXP’s wireless business was sold off, the sound solutions business unit was sold off, the TV and set-top box IC business unit was sold off and fabs in Caen, Hamburg and New York sold or closed. A $6 billion debt burden was placed on the company’s books to help defray the purchase cost. Some 15,000 people lost their jobs.

 

That was a heap of misery for many ex-employees and their families. So much so that the Dutch government applied to the EU for hardship money to help the sacked NXP workers.

 

Renesas, with 25 manufacturing sites worldwide must seem like juicy plunder to an asset-stripper with these kind of appetites.

 

KKR and Silverlake are not the only American asset-strippers to try and pursue their grisly trade in Japan. NEC Electronics, the former semiconductor arm of NEC, had an American stalker called Perry Capital for some years.

 

Perry offered to buy a big tranche of shares in NEC Electronics – up to 25 per cent – and asked NEC Group to reduce its representation on the NEC Electronics board. When the NEC Group declined the offer, Perry threatened to take them to court. The situation was resolved by other means when NEC Electronics was folded into Renesas.

 

So be warned. If the Japanese authorities allow KKR and Silverlake to buy Renesas, the consequences will be utter misery for tens of thousands of Japanese people.

 

The very same people who won worldwide admiration for putting Renesas’ manufacturing capability back on its feet in double quick time after the great earthquake of 2011.

Tags: debt burden, grisly trade, hardship money, japanese authorities, mass sackings

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101 Comments

  1. David Manners
    October 02, 2012 15:50

    What I see, Anonymous, is a company making pretty much the same revenues for pretty much the same profit as it made six years ago but, in the meantime, Europe has lost both a top ten performer and its Crolles R&D consortium, while thousands of European families have lost their breadwinner’s wage packet. If KKR have made $3 billion out of causing this, then the downside of private equity’s involvement in industry is clear.

  2. Anonymous
    October 02, 2012 15:39

    As today’s NXP sharevalue, it is 6.21B. After around 6 years takeover, can we say KKR and PE already make a profit of 6.21-3=3.21B?
    That is already huge gain for those PE.
    From this point of view, the debt is the cost/value of assets with higher intertest. Even those company with low debt, it is like the cost/value of assets without intertest in finance report.

  3. Hal555
    August 15, 2012 17:57

    A little late to the party but allow me to add a comment.
    I also met both gentlemen and believe they are likeable, van Houten more than Meyer. But in every affair there are two parties.
    In the NXP case we got van Houten, not a semiconductor guy, sent from Amsterdam to maximize cash flow into Philips. Follows a Dutch auction with 3 separate PE groups, the winner? Philips. Reward: top job at Philips once the transaction was completed.
    On Freescale, watch the PE circus in Europe over NXP, write-off factories to “improve” gross margin numbers, accelerate receipt of IP licenses, in general put make up on the pig. Get lots of cash and fly back to Paris to bid for the Alcatel job.
    Say what you must about Blackston and KKR, at least they are up front on their objectives: seller beware. Both van Houten & Meyer were parties to the pillage and plunder and got set for life.

  4. David Manners
    July 10, 2012 14:57

    To be honest, BlackStar, I rather like them both. But that’s no excuse. Mayer, I agree, was the architect of the Blackstone take-over persuading them to do it, probably against their better judgment. van Houten, I got the impression, simply didn’t appreciate how awful the PE industry is. I had a conversation with him around the time of the sale to KKR and he seemed convinced he could make it work. To be honest I thought he was a bit naive about PE. I’m sure he thought he could make it work, but the point is, he didn’t just seal the deal and run for the hills.

  5. BlackStar
    July 10, 2012 12:37

    The numbers are indeed staggering. The only point I will dispute is about Michel Meyer, his only accomplishment was to invite PE into the party, collect his share and go back to Paris. I am surprise you are so lenient on both Meyer & van Houten in these cases: they were at least collaborators if not the executioners for PE.

  6. exNXPer
    July 09, 2012 09:57

    HJ, YOU REALLY DON’T GET IT DO YOU!
    “You have not explained how PE (“Asset Strippers” you call them) can survive if they don’t add value. Please explain how they make their money if they don’t.”
    Now let me see, how can thieves and scoundrels survive if they don’t add value?

  7. David Manners
    July 05, 2012 06:40

    Well Dave, Freescale had been pretty well shaken up before Blackstone bought it, once when it spun out of Motorola, and once again when it IPO’d under Michel Mayer. And remember Blackstone bought Frrescale at a valuation of $17.6bn, loaded $10bn of debt on a company with revenues of $4bn and it now has a market cap of $2.4bn. I’m rather surprised at my own moderation in my criticism of PE when I contemplate those figures.

  8. Dave
    July 05, 2012 06:02

    Good point Hal555 … Freescale & NXP needed shaking up. Bear in mind only companies with perceived market weaknesses and poor use of assets will ever be pursued by private equity, otherwise they cant make a buck. If you dont want your company owned by PE, the best thing is to run it well!
    I prefer to look at it as buying a house. You can buy it and sell the bricks and mortar if you want (the “asset stripper” outlook). But you’re only going to do that if you think you’ll get more money doing that than keeping the house intact. And no-one will pay you for it unless they can use the bricks for another house. Or you can renovate: knock down the old garage, replace the old roof, bulldoze the garden and start again. In the end, you need to be sure the end result is worth it and your new place is worth more after than before. Again, if you are going to lose value, you wont do it. To do all this, you probably arent going to wait till you’ve saved up all the money to buy the house and pay for the renovation, you’ll borrow. This is called gearing. And if you end up with a house worth less than before, your gearing will mean a big financial loss. If you improve the house, your gains will be multiplied. The “renovation” path is what I believe most PE (not all) are after. Cut-back, rebuild, improve and use financial leverage to magnify profits.
    I also tire of the reflex knocking of PE in this column. Buying a company with debt is no different to buying a house with debt, and you never hear anyone complaining about that. In both cases, you’d better make sure you can repay the debt, but there are good reasons to use debt to finance your purchase.
    Cheers.

  9. David Manners
    July 03, 2012 18:16

    Thanks, hal555, I agree with all of that. But if there was ever an industry which asked to be judged on numbers, rather than social responsibility, creative product development, outstanding R&D, good working conditions etc, it is the private equity industry. They stand or fall by the numbers and Blackstone with a company worth $2.4bn which they valued at $17.6bn six years ago and KKR with NXP with a market cap of half the value they put on it in 2006 have clearly failed the numbers test.

  10. Hal555
    July 03, 2012 17:08

    Hello David, it is true that NXP is essentially the same size than they were in 2005 but it is an entirely new company. Back in 2005 the wireless and consumer businesses were at east $3 of the total with multi-market covering the rest.
    The wireless business did fairly well between 2001-2005 but had to either purchase somebody (Infineon?) or be sold to somebody (ST-Ericsson as turned out to be) to achieve the scale needed to maintain pace with competition. The problem at ST-Ericsson was the inability to integrate 3 product roadmaps (ST, Ericsson, & NXP) into a single one, always a difficult task but cannot be blamed on KKR.
    The consumer business was captive to Philips and not exactly had a good ROI so wisely got sold too.
    The new NXP continues to generate cash and while I believe the company could transform without the PE “infusion” (can we even call it that?) the key driver to KKR participation was Philips desire to get cash immediately.
    A secondary effect was that Blackstone and friends then bought Freescale at also exorbitant multiples and just as NXP, our friends at Freescale are loaded with debt.
    So, I agrre with David’s premise that PE is more interested in cash than in creating businesses but at the same time we can’t place all the blame at KKR’s feet. Both NXP and Freescale needed shaking up and would had to divest factories and people, hopefully in a more socially responsible manner but as you say David: numbers don’t lie.
    All the best!

  11. David Manners
    July 03, 2012 14:00

    Ranting again HJ. Zero facts, zero figures in that one. I reckon I could make a better defence of KKR’s stewardship of NXP using real facts and real figures, than you can. Get real.

  12. HJ
    July 03, 2012 13:57

    On the contrary, David, you do not deal in facts and figures – you just pick and choose the figures which you think support your view (even though I have demonstrated that they don’t).
    Your example of Rover was just plain wrong.
    You have not explained how PE (“Asset Strippers” you call them) can survive if they don’t add value. Please explain how they make their money if they don’t. I have asked you several times to explain this – but you just ignore the question (you even made a reference to their ‘fees’, which betrays a complete misunderstanding of how they work).
    Some of us deal in reasoned argument (which you lie to dismiss as ‘rants’, even though numerous NXPers have supported me, and none have supported you) – you, however, deal in blanket certainties which, demonstrably, cannot be true.

  13. David Manners
    July 03, 2012 13:44

    Facts would help your case, HJ, I deal in facts and figures while you just rant.

  14. HJ
    July 03, 2012 13:29

    David – everybody here who works or has worked for NXP disagrees with you, yet still you assert that you are correct.
    NXP may have slipped down the rankings and it may not have grown, but that is only half the story.
    And yes, I can argue with your numbers. Where was it headed before the takeover? Indeed, why was it sold? How much value has been realised by selling off parts of it? Looking only at the size and ranking of the ‘rump’ is misleading. Size alone is not an indicator of success.
    However, let us assume – for the sake of argument – that the PE owners have made a mess of it. That is not evidence for your argument that PE/Asset-strippers are always a bad thing. If they weren’t more often successful than unsuccessful, they’d go out of business, wouldn’t they? After all, they have to pay the existing shareholders a premium on the market value of their shares, and then turn in a profit on the money they have invested.

  15. David Manners
    July 01, 2012 20:38

    Ha ha Stooriefit. Hope you had fun on your travels. Yes, the chaps have been getting a little feisty while you were away. All about assets and assholes. Welcome back.

  16. Stooriefit
    July 01, 2012 20:12

    Crumbs – I go away for a few days and it has all become a little overwrought! I’m loosing the thread a little bit …
    Has Mrs Philips sold her old folks to the KKK? What did they want with a burning Southern Cross?
    Have Shakespeare and Bernard of Clairveaux appeared on the curriculum of an MBA somewhere? Is an iambic pentameter being added to the metrics of “business dashboards”?
    Have the PE boys finally convinced someone Poor is the new Rich?
    If so can we do the Greek thing and swap assets? I don’t want to fund their next trireme, especially if they are going to row it full tilt into a iceberg again.

  17. David Manners
    July 01, 2012 05:52

    The numbers do not support you, NXPer. When KKR bought NXP in 2005, NXP had revenues of $4bn. In 2011 NXP had revenues of $4bn. In 2005 NXP was a top ten company now it is No.16. So NXP has not grown with the market since it was bought by KKR. It has not grown at all in six years of ownership by KKR. For over 30 years before KKR bought NXP it had always been a top ten company showing that it grew with the market for over three decades. Since KKR bought NXP, NXP hasn’t grown. You can’t argue with the numbers.

  18. NXper
    July 01, 2012 01:05

    Sorry David, wrong again. NXP always continued developing new products, despite the debt situation. Prove: Check our website and keep an eye on our almost daily press releases on new products.
    The debt is a burden, but we brought it back significantly. Sure, this is where the revenues of our SoC businesses in mobile and TV helped. But these where businesses we where not able to make a success out of. The asset stripping of these parts was the right decision, I think, and I fully support HJ in his assumption that as many, or more, people would have lost their jobs when we would have continued the struggle in these businesses; the most likely scenario in the Philips days.
    It’s useless, and even harmful, as I stated earlier, that you judge the role of PE, while structurally neglecting:
    1. What went well under their influence
    2. What would have happened to NXP if KKR c.s. hadn’t stepped in.
    I fully support HJ, and can fully relate to his irritation over your one-sided approach.
    And in case you wonder: I am with Philips/NXP for over 20 years myself, in engineering as well as marketing roles.
    P.s. When I asked for clarity, before, I replied to the part where you brought your queen into the discussion….

  19. David Manners
    June 28, 2012 11:50

    HJ writes: “The PE boys can do no more than the companies can do for themselves – without having to pay the PE guys’ extortionate fees.”
    David, you really don’t understand, do you?
    PE guys don’t charge “extortionate fees” – they don’t charge fees at all. They BUY companies and then either run them better or sell off parts (or a mixture of the two) in order to realise greater value.
    If they are not able to offer greater value to shareholders than the shareholders believe that they will get from the existing management, the shareholders wouldn’t sell, would they? And if the PE guys can’t achieve a value above what they’ve paid, then they won’t stay in business for long, will they?
    Please explain why you think that you are in a better position to judge the financial interests of existing shareholders than those shareholders are themselves.
    The idea that existing management can – as a blanket rule – do more for the value of company than PE investors is ridiculous. How do PE investors ever make money in this case? Why would anyone put their money into PE rather than just buying shares in companies.
    I am not pretending that PE companies always make the best decisions or that they always turn out better than incumbent managements. I am saying that the market should decide, and clearly PE companies get things more right than wrong overall, otherwise they would go out of business. How do you think they make their money?

  20. David Manners
    June 28, 2012 11:12

    Well actually, greg, $600m might pay for a bit more than beer. Theroretically it could pay for one third of Renesas considering its $1.74 billion market cap. A company with a revenue stream of $10 billion and a market cap of $1.74 billion must make KKR’s Brats drool!

  21. David Manners
    June 27, 2012 21:43

    Very true Greg. The PE boys can do no more than the companies can do for themselves – without having to pay the PE guys’ extortionate fees.

  22. greg
    June 27, 2012 20:10

    Just a bit more on that.
    If you are in the position of the owners ie Hitachi etc. 600M split up between you may pay for a bit more beer, but its basically small change.
    If you let PE at the business they will run the numbers for individual segments and product lines, figuring out which ones are in the black and which are in the red (current management should already know this). They’ll make cuts accordingly and fatten up the black ones for sale to third parties.
    Personally I’d recommend that management aim for a structured bankruptcy in the hands of receivers which would have the same outcome of separating the loss making and profit making segments, but wouldn’t raid the bank accounts. (raiding the bank accounts is classic non-reported PE form to pay for its fees). In that way the good bits would live on, and it gives the employees a bit of heads up to plan their lives.
    I don’t really see any upside in selling to PE’s except if they really need their bit of bear money, in which case they have bigger problems to worry about.

  23. David Manners
    June 27, 2012 19:48

    Funnily enough, Greg, Renesas has, or had, just such a man. He even became Renesas Chairman briefly after Nec joined the Renesas fold. He’s an ex-nec guy. Probably the only man in Japan who could save Renesas. But less visionary and and dynamic minds appear to have forced him onto the sidelines.

  24. greg
    June 27, 2012 19:38

    I find it interesting that someone would reference a consultancy report.
    Typically these people write ‘reports to order’, and will have zero industrial experience. Likewise most private equity players have zero industrial experience. Its going to be a bit tough figuring out why dilbert is so on-the-money if you come from the rarified world of management consultancy and financial services. At the strategic level its fairly obvious that cuts need to be made in a business like Renesas. The real problem is that management consultants and PE are not qualified to do it.
    I’ve been through the MBA mill.. its a training ground for business efficiency – read cut as many corners as legally possible. MBA’s don’t set tech companies up for long term growth. If you believe they do you are smoking something pretty good. So Renesas may be basically screwed at this point. If there is a saviour its probably in the form of a tech visionary (read someone who didnt kiss enough ass to get into management) and unless one is identified to imagine a new marketplace based on their talent, its likely that the PE will cut that talent and seal their fate.

  25. David Manners
    June 27, 2012 12:10

    Well you have called my POVs ‘ridiculous’, ‘ignorant’, and ‘entirely missing the point’. Let’s not fall out over it. It’s all a bit silly really. I expect we basically agree.

  26. HJ
    June 27, 2012 11:57

    David – it was you who were getting personalwhen you started accusing me of “spouting theoretical management-speak” which something which no sensible person could accuse me of.
    Other NXP assets were sold to other companies. Why do you not mention them? Where is your evidence that NXP would have been more successful if it had continued as before? There was an NXP employee on here who disagreed with your assertion.
    The Phoenix 4 behaved very badly (and were banned form being directors as a result) but they were NOT asset-strippers. BMW asset-striped Rover by splitting off Mini and Jaguar/Land Rover – both now highly successful. What assets do you think that the Phoenix Four stripped from Rover? They may have lined their own pockets, but they didn’t do it by selling off assets.
    Blackstone did not asset-strip Southern Cross. You are just revealing your ignorance of business. They constructed a sale-and-leaseback financial model which was unsuccessful. They paid the price for doing this.
    I can supply many examples of where companies have been acquired by private equity companies (and it doesn’t have to be PE companies that do this) who have made a success of the businesses by selling off non-strategic parts and investing in the rest. Don’t believe me? Then see here:
    http://mcgladrey.com/Private-Equity-Groups/2012-Private-Equity-Survey

  27. David Manners
    June 27, 2012 11:52

    P.S. NXPer, I would add that it’s not NXP management which is to blame for the lack of growth at NXP but it’s entirely the fault of KKR for putting so much debt on the company. When Frans van Houten was CEO of NXP, shortly after KKR bought it, he told me that the interest on the debt imposed by KKR on NXP was costing NXP ‘between $450m and $500m’ a year. This money had to be found out of annual revenues of $4 billion – so it’s a huge amount to find while trying to invest in new products. The oldest adage in the semi book is that a semi company lives or dies by its new products. To fund a new product stream you need growth. By taking so much of NXP’s revenues in debt interest, KKR diminished NXP’s ability to develop new products and grow the company. So NXP’s inability to grow is not the fault of NXP management – it is entirely the fault of rank bad ownership by KKR.

  28. David Manners
    June 27, 2012 11:25

    I pointed out KKR hasn’t grown NXP. I pointed out that NXP assets sold to ST-Ericsson had been dramatically unproductive. I think the whole country knows the Phoenix 4 asset-stripped Rover and Blackstone asset-stripped Southern Cross. Now that you’re getting personal, we’d better agree to differ and leave it at that – you like asset-strippers and I don’t.

  29. HJ
    June 27, 2012 11:19

    You’ve produced no concrete cases, David, to support your case. Neither do you actually answer any of the points I made.
    You quoted Rover in support of your argument. I demonstrated that you were clearly wrong (you haven’t contested this). Thank god that Mini, Jaguar and Land Rover were “asset stripped”.
    Neither have you demonstrated that the NXP case did not generate value. You have looked only at debt, the rump of the company and redundancies. You entirely neglected to look at what has happened to the parts that were “asset stripped” (possibly far more successful now), nor at where the company was previously headed, nor at what redundancies would have occurred anyway.
    You only look at what you want to see, David. You have no experience of business, yet you accuse someone who has 30 years of experience of spouting theory whereas you consider yourself to be grounded in reality.
    I would say that you couldn’t make it up. But you have.

  30. David Manners
    June 27, 2012 11:09

    I’m not what? Iin this exchange, I’m the one producing concrete examples and you’re the one spouting theoretical management-speak.

  31. HJ
    June 27, 2012 11:06

    No David, you’re not.
    Your example of Rover I have demonstrated to be absolutely wrong.
    Sometimes ‘asset strippers’ are necessary to split up poorly performing companies – perhaps ones that have less than critical mass in most or all of their markets. The sold off parts often do well when merged with another company (whose leaders may be excellent). The ‘rump’ (if there is one) may benefit from a new focus under new management.
    Where is your evidence that incumbent management is always better than the management of the parts when a company is split up? You have none.

  32. David Manners
    June 27, 2012 10:59

    I’m talking cases, you’re talking theory, HJ. There will always be good managers like Grove who lead their companies to success, and asset-strippers out for a quick buck. As a humble journo I feel it’s my job to applaud the former and deride the latter.

  33. HJ
    June 27, 2012 10:55

    David,
    You are entirely missing the point. I did not say that the “asset strippers’ that you vilify always get it right. You claim that the company involved here have failed with NXP. Perhaps they have. On the other hand, perhaps you’re guilty of only looking at the rump and ignoring the fact that they have spun off parts of the company that may be doing well elsewhere (or at least where they were perceived at the time by the buyers to have greater value for them). Do you know that KKR have failed to make a return? Have you evidence that, overall, there is now more value to what was NXP (including the sold-off parts)?
    Let’s look at an alternative scenario where ‘asset strippers’ weren’t allowed to do what they do. An incumbent under-performing management would be safe. Their shareholders wouldn’t be permitted to sell to someone who offered them a better price because they saw greater value in selling off parts (or all) of the business. What are you proposing – a ban on takeovers in order to protect poor management?

  34. David Manners
    June 27, 2012 10:43

    That’s all fine and dandy in theory HJ but what happens in practice? KKR has owned the assets of NXP for six years. This was a company in the top ten semiconductor list for over 30 years. Now it languishes at 16th. Revenues and profits have not grown for six years. Not a productive use of assets. NXP assets sold to ST-Erisson are so badly managed that the company is losing $2 on every sales $. Not a productive use of assets. One of the greatest semiconductor managers, Andy Grove, writes in his book Only the Paranoid Survive: “I can’t help but wonder why leaders are so often hesitant to lead. I guess it takes a lot of conviction and trusting your gut to get ahead of your peers, your staff and your employees while they are still squabbling about which path to take, and set an unhesitating, unequivocal course whose rightness or wrongness will not be known for years. Such a decision really tests the mettle of the leader. By contrast, it doesn’t take much self-confidence to downsize a company – after all, how can you go wrong by shuttering factories and laying people off if the benefits of such actions are going to show up in tomorrow’s bottom line and will be applauded by the financial community?”
    Are you with Grove HJ? Or against him?

  35. David Manners
    June 27, 2012 10:34

    Sorry to be unclear, NXPer, what I was trying to say is that, after KKR’s six years’ ownership of NXP, KKR has failed to grow the revenues or profits of the company while sacking 15,000 people and running up over $3 billion of debt. So KKR’s ownership record at NXP is crap. Hope that is clear.

  36. NXPer
    June 27, 2012 09:50

    Usually you’re much clearer… David. What are you implying here?

  37. HJ
    June 27, 2012 08:09

    David,
    Had it not occurred to you that ‘asset-strippers’ tend to target companies which are under-performing or in trouble already? They don’t target the well-performing ones.
    These are exactly the sort of companies that are likely to be making redundancies anyway. Perhaps they wouldn’t have taken the action so quickly, but this often means that the problem is left to get worse, resulting in more redundancies in the longer term.
    Because of the actions of ‘asset-strippers’ who aim to put assets to more productive use (and more often that not, they succeed, otherwise they would go out of business themselves), they improve the performance and efficiency of the industry overall. Are you really arguing that this is undesirable?

  38. David Manners
    June 26, 2012 22:28

    I don’t think asset strippers are the only owners which sack tens of thousands of people HJ, I just think asset strippers are the only owners which always sack tens of thousands (or as many as they dare) people

  39. HJ
    June 26, 2012 21:27

    I have worked for seven semiconductor companies over a period of 30 years, in the UK and overseas, in engineering and commercial roles.
    Accusing someone else of being a ‘troll’ whist supplying no counter-argument is pretty feeble.
    David Manners appears to believe that it is only when ‘asset strippers’ get involved that large numbers of people get sacked. I can tell him that this isn’t true. I could equally argue that it may be that sacking 15,000 people now might avoid sacking 25,000 people later if you fail to use the assets more productively (which is what ‘asset-strippers’ seek to do).

  40. David Manners
    June 26, 2012 20:00

    $10,000 Bitter? A hooker would have to be jolly wriggly to be worth that.

  41. Bitter
    June 26, 2012 19:46

    With some persistence the Brats over at KKR probably will give up Renesas and go back to what they do best; snorting cocaine and shagging 10.000 dollar hookers.
    Now that I think about it. I wonder if KKR have any open positions?

  42. David Manners
    June 26, 2012 19:25

    Thanks, Bitter. I feel St Bernard of Clairvaux is working up above to scupper KKR’s nefarious scheming against Renesas.

  43. Bitter
    June 26, 2012 19:16

    Congrats David, they passed the “ignore you” part and now they are either laughing at, or fighting you!
    Soon victory will be yours! :-)

  44. David Manners
    June 26, 2012 18:40

    P.S. NXPer, never underestimate the power of Her Majesty’s Press

  45. David Manners
    June 26, 2012 18:33

    Thanks, Keith I wouldn’t have dared to ask HJ that, he sounds rather fierce

  46. Keith
    June 26, 2012 18:30

    Can we ask HJ what his expertise is, and how he feels qualified to enter this debate? Hiding behind a couple of initials is so easy for trolls.

  47. David Manners
    June 26, 2012 18:07

    As bad as sacking 15000 people? C’mon HJ and Just as I was thinking you had a heart.

  48. David Manners
    June 26, 2012 18:05

    And you, NXPer, keep avoiding my point that NXP has not grown profits or revenues in the six years it has been owned by KKR. Yet it has acquired $3 billion of debt thanks to KKR. I’m pleased NXP has developed all those great qualitiies you mention – focus, drive etc etc, but when are they going to have a positive effect on the balance sheet?

  49. HJ
    June 26, 2012 16:57

    Proposing to prevent people from disposing of assets that they do own, as they see fit, is nearly as bad.

  50. NXPer
    June 26, 2012 16:53

    David, you know, and I know, and everyone else knows that you won’t influence any decision making by Japanese authorities by your pieces. That is one poor excuse, really….
    You dramatize the negative effects of PE taking over a company, and structuraly neglect the positive effects of it, as witnessed by many insiders in their replies. You just continue screaming: “Look what those terrible firemen did to my house: it’s all wet now!
    I am glad there are also blog-writers with some sense of nuance, bringing balanced facts, and leaving readers some room to make up their own minds: http://www.eetimes.com/electronics-news/4376040/White-knight-or-asset-stripper-

  51. David Manners
    June 26, 2012 16:50

    HJ, I do believe you have a heart after all.

  52. HJ
    June 26, 2012 16:48

    Where do I stand?
    My view is that they weren’t his assets to sack, so it was an abuse of power.

  53. David Manners
    June 26, 2012 16:40

    BTW, HJ, where do you stand on Henry VIII’s sacking of the monasteries? A productive use of assets?

  54. David Manners
    June 26, 2012 16:25

    I have zero experience of working in the semiconductor industry HJ so any experience you have is more than mine but, as the great St Bernard of Clairvaux nearly said: “Asset-strippers are the Devil’s spawn.” Or as Bernard would himself have put it: “Décapants actifs sont le frai du diable.”

  55. HJ
    June 26, 2012 16:18

    Your use of it is cryptic.
    What’s more, I think we’ve already established that I have rather more experience of working in the semiconductor industry than you have a as journo. Therefore I disapprove of simplistic philosophies such as the one that assumes that “asset-stripping” is a bad thing without thinking about what it really means.

  56. David Manners
    June 26, 2012 16:08

    1. That’s not cryptic, HJ, it’s Shakespeare.
    2. I agree.
    3. Bernard of Clairvaux – an 11th century French monk who disapproved of asset-stripping..

  57. David Manners
    June 26, 2012 16:03

    HJ writes|: So you’ve given up on trying to argue your case, David, and are resorting to trying to be cryptic.
    One can only hope that you never get anywhere near running a company – it would be a disaster for all concerned.
    Who was it that said that “the road to hell is paved with good intentions”?

  58. David Manners
    June 26, 2012 15:36

    There are more things in heaven and earth, HJ, than are dreamt of in your philosophy.

  59. HJ
    June 26, 2012 15:29

    So you think that the new owners shouldn’t be allowed to sell things that they own?
    You are guilty of lazy assumptions, David. So-called ‘asset strippers’ usually target companies that are in trouble or have under-performed and they put those assets to use more efficiently or sell them to someone who will. You then blame those asset strippers when jobs are lost, without considering whether more jobs would be have been lost if the company had continued on its previous path.
    I can name you a long list of electronics and semiconductor companies that have laid off thousands where no “asset strippers” were involved.

  60. David Manners
    June 26, 2012 15:16

    You are 100% right [Anonymous] we have the cheek of David Cameron berating poor people for a ‘money for nothing’ culture and then the greed of bankers and top execs giving themselves bonuses for managing failed (RBS, Lloyds) or failing businesses. It’s capitalism for the poor; socialism for the rich. The poor are demonised as work-shy and the gouging rich guys are lionised as heroes. There’s something very very wrong going on.

  61. Anonymous
    June 26, 2012 15:09

    Human decency is what the world has been lacking in business for some time. Take Atmel, under George Perlegos the employees mattered, even the French ones. Layoffs were the last action in cost reductions. Along came a Bain trained replacement armed with his excel and power points to restructure the company. Everything and everyone was cut back, no investment in new products, just a lucky acquisition of Quantum Research. They call it progress but the CEO received a well justified compensation package of $18M to keep him motivated.
    We need the reintroduction of the guillotine to reign in this ” Money for nothing” culture.

  62. David Manners
    June 26, 2012 15:08

    HJ HJ this sounds like a MBA course tract – all theory theory theory and no understanding of what it takes in trust of people, judgment, creativity, intellect and work to make businesses successful.

  63. David Manners
    June 26, 2012 15:02

    I’m really glad, NXPer, that the new NXP is dynamic, focussed, positive and driven. But it seems to me legitimate to point out that this new NXP was achieved by 15000 families losing their bread-winner and the assumption of $3 billion worth of debt with no increase in revenues or profits after six years of ownership. As to Renesas, it seems to me worthwhile to point out to the Japanese authorities that they should not allow KKR to asset-strip Renesas.

  64. David Manners
    June 26, 2012 14:57

    HJ 1. Yes. 2 True. Your opinion is your own affair.

  65. NXPer
    June 26, 2012 14:57

    David, now that it seems that you care so much about the people, I wonder: How would people at Renesas sleep after reading your frightning and one-sided piece.
    It’s e.g. striking that you NEVER comment on the positive aspects that people bring in, in this case the gain in focus and positive drive at NXP since we were cut loose from Philips. Or the aspect of alternative scenarios: what would have happened to the poorly performing business parts in NXP (and the people there) if they were not sold. Well, I can only explain like this: it just doesn’t suit you, it would lower the dramatic effect of your tabloid style statements.

  66. Anonymous
    June 26, 2012 14:55

    Just wait until Romney gets hold of the US Presidency, puts his Bain experience to work and appoints all of his fellow Bain buddies to help run USA into the ground even further.

  67. David Manners
    June 26, 2012 14:54

    OMG [Anonymous] and Mitt Romney was head of Bain. Maybe he’s got a private equity-type exit strategy for the USA – sell the USA for a huge sum to the Chinese, distribute the proceeds anong his rich friends and then declare the country bankrupt.

  68. HJ
    June 26, 2012 14:53

    David,
    1. So you admit that you have no expertise or experience.
    2. Your employers have no power or right to appoint you to anything to do with overseeing other companies. They merely appointed you to comment, which you have done, foolishly in my opinion.

  69. HJ
    June 26, 2012 14:50

    So now you’ve retreated from your argument (having lost it) and have now come up with the “human decency” argument.
    So let me ask you a question. If a part or parts of a company are sold off to someone who values them more because they feel that they can make more of a success of it, is that likely to be better or worse for the people who work for it/them?
    Using assets more productively is a moral imperative. You are arguing for the inefficient use of assets – which will ultimately make people poorer.
    My pension fund is invested to bring the greatest return. I want the fund managers to achieve the greatest return. Do you think that it would somehow be “more decent” for me to be in penury in retirement because you dictated that they shouldn’t maximise the return?

  70. Anonymous
    June 26, 2012 14:47

    Just Like Bain Capital. But the cost on the books, take a profit with no risk and declare bankruptcy.

  71. Anonymous
    June 26, 2012 14:44

    11 seconds holding the shares is preferable to the 5 seconds it take for the VCs to screw you!

  72. David Manners
    June 26, 2012 14:44

    Answers HJ: 1. None. 2. My employer who’s paid me for 34 years to write about the semiconductor industry.

  73. David Manners
    June 26, 2012 14:37

    I think I get it only too well, HJ. If you eliminate human decency from business life and think like an business school course-work textbook, then you reach the conclusions you reach. The current zeitgeist embraces an amoral disregard for human decency in business. I like Keith’s summing up of the KKR/NXP asset stripping deal as: ‘Mrs Philips sells her children to a well known child molester Mr KKR who then puts them in the work house.’ Do you regard the Mrs Philips in the example as pursuing her enlightened self-interest?

  74. HJ
    June 26, 2012 14:36

    David,
    What you are arguing is that you are better qualified to decide what should happen to a company and how it should be run than the people who actually own it.
    So, two questions:
    1. What is your expertise? Concrete examples please of how you have run a company to create value.
    2. You consider that the people who own a company are not competent to decide what is in their own best financial interests. Who appointed you to oversee what they do with their money?

  75. HJ
    June 26, 2012 14:25

    You really don’t get this, do you David?
    I’ve clearly demonstrated that you were completely wrong in your reference to Rover. The value of Mini, and Land Rover/Jaguar was clearly enhanced by “asset stripping” – indeed it would have been destroyed by shackling them to Rover.
    As for Southern Cross, it was a bad idea. And guess what? The company collapsed as a result and shareholders paid the price. What’s more, the care homes all still exist and are still open. But the important point is that it wasn’t an asset stripping deal – it was a sell and leaseback deal, which is completely different thing.
    You really are guilty of a lazy assumption that ‘asset stripping’ is somehow a great evil without thinking it through.
    Now it is true that sometimes companies are bought with the intention of selling off a part or parts to make a profit (nothing wrong with that) but that the judgement of the buyers is wrong and they don’t make money because the value of the parts isn’t as great as they imagined. But in this case it is simply a wrong business judgement, just like it is often a wrong business judgement for incumbent management to try to keep a group together when the parts are worth more (because they would be more productively used) if owned by someone else. The incumbent shareholders are under no obligation to sell to “asset strippers” if they feel that the incumbent management would better maximise shareholder value. The point, however, is that if the “asset strippers” judgement is wrong, they will make a loss. They only make a profit if their judgement is correct – so they have a good incentive to get it right.
    I prefer business decisions to be made by those that are best at creating value and who are risking their own money or that of investors who value their judgement What do you prefer, David?

  76. David Manners
    June 26, 2012 13:55

    Let’s take another example, HJ, Blackstone’s looting of the Southern Cross old peoples’ homes. They bought the company, sold the freeholds on the homes, leased them back, took a billion for themselves from the business which then collapsed – putting the care of old people at risk. A magnificent example of astute wealth creation in your book, eh HJ? Or would these assets have been more productively employed under the pre-Blackstone ownership when they provided a secure home for old people?

  77. HJ
    June 26, 2012 12:23

    I’m afraid that it is you that is guilty of naivety, David.
    Rover wasn’t asset stripped by its directors – perhaps it should have been. It was badly run while the directors enriched themselves – and the Rover directors were disqualified from becoming directors as a result of their behaviour.
    Indeed, BMW had previously asset-stripped Rover. I am referring to Mini and Land Rover and Jaguar. Look what successes they have become as a result of the asset-stripping that you so deplore. Do you think that they would have been better left as part of the Rover Group under its incompetent management?
    Asset-strippers can make money only by realising the value of assets that were not previously fully exploited. They sell to other companies that value the assets more because they believe that they can better utilise them. This means putting resources to more economically productive uses.
    I am disappointed that you have not learned from experience and still peddle this Guardian-style guff about the supposed evils of asset strippers without actually thinking about whether it is really a good idea to leave badly-run or economically non-viable companies as they are, gradually or rapidly declining.

  78. David Manners
    June 26, 2012 11:43

    Your naivety does you credit, HJ. Look at the ‘Phoenix 4′. BMW sold Rover to them for £10 with a cash injection of £500m, paid off £500m of debt and handed over 65,000 cars worth over £500m. The Phoenix 4 undertook to run Rover as a going concern. When the Phoenix 4 asset-stripped the company, 6,500 jobs were lost at Rover, 15,000 jobs were lost at Rover’s suppliers, Rover had debts of £1.3bn, the Phoenix 4 were rich. You like that HJ? You think it’s good for people? Good for Britain? Economically productive? Maybe Gordon Gekko got to you at an impressionable age.

  79. HJ
    June 26, 2012 11:30

    David, that’s ridiculous.
    The assets (which often include employees) must have greater value to another party or they wouldn’t buy them (and the selling party wouldn’t sell), i.e. they know how to put them to greater use.
    If this weren’t the case, then the company would have greater value if the assets weren’t sold.
    Are really you suggesting that the economy would do better and more value would be added by continuing to employ those assets less productively than they could be used?
    These asset-strippers that you so revile are performing a useful economic function – they make their money only if they can find ways of employing the assets more productively by finding buyers to whom the assets are worth more. Without them, we would all be much worse off.

  80. David Manners
    June 26, 2012 11:17

    It’s failure, HJ, instead of trying to keep an enterprise alive you sell the assets and sack the people. Businesses pay tax, employ people, create value – they are the bed-rock of a prosperous society. Destroying them for a quick buck is a stab at the heart of society.

  81. David Manners
    June 26, 2012 11:12

    Beautifully put, Keith, a precise encapsulation of the essence of the tragedy.

  82. HJ
    June 26, 2012 11:07

    What’s wrong with asset stripping?
    It is merely a means of realising the fact that the total value of the parts of a company can be more valuable than the company as a whole.
    If this is the case, asset stripping is merely putting the assets to better use.

  83. Keith
    June 26, 2012 09:25

    Well David, it doesn’t exactly smell of roses, I agree.
    However, let’s describe it somewhat differently: Mrs Philips sells her children to a well known child molester Mr KKR for a huge sum, who then puts them in the work house. Who is really to blame?

  84. David Manners
    June 25, 2012 17:45

    Well Keith these acquisitions were not huge – $12m for Jennic; Catena was a design house with about $26m in revenues; don’t know about IIRC – small compared with divestments topping $2 billion Philips sold NXP but KKR were plenty keen to have it – paying $10 billion! And who else to blame but KKR? Overpaying, over-loading the company with debt, incapable of creating revenue or profits growth after six years and sacking 15000 people. What’s to like about that record?

  85. Keith
    June 25, 2012 17:07

    David, once again you put the blame for all the NXP woes on KKR, but as I have said it was Philips who threw NXP to the wolves. KKR may have been a bit stupid to pay so much, who knows, but they subsequently tried to prune the dead wood and from what I see of NXP these days they (and the NXP management) have done a good job of it, it’s quite a different company from what it was.
    As for NXP under KKR not investing, this is simply not true. NXP bought Catena, NXP bought Jennic, and IIRC another too.

  86. David Manners
    June 25, 2012 14:48

    I agree it is good to pay down debt, Anonymous, but who put the $6 billion debt there originally? Answer: KKR. And why was the debt so big? Because KKR were mistakenly persuaded by a master deal-maker – Frans van Houten – that NXP was worth $10 billion. So first KKR overpaid for NXP, then it imposed too much debt on the company and NXP’s people had to pay the cost in the human misery of lay-offs for KKR’s mistakes. No company having to find $450 million in debt interest out of $4 billion in revenues has enough to spend on growing the business. So in 2006 NXP was a $4 billion revenue business with a billion in the bank and no debt. Now it’s still a $4 billion revenue business with $3 billion of debt and 15000 families have suffered badly. I don’t understand why you think this is progress.

  87. Anonymous
    June 25, 2012 14:37

    David, now we are starting to have an Euro growth v.s. austerity debate. Reducing the 6B$ debt by half IS a growth strategy. The interest paid on the debt amount is reduced dramatically, plus the company lost a lot of “fat” and “cholesterol”. Such gutsy decisions to get rid of big divisions that do not have future would never be taken inside Philips, where everything was slow and based on politics more than on economical rationale.
    The NXP stocks went up from 13$ to 23$, NXP because leader in NFC (new domain), is investing in 6LowPan green power chips ( Internet of Things)and a bunch of other future stuff (I am not in NXP management, I am not preaching some written PR scenario, I am just an ordinary NXP employee)
    Going back to Renesas, actually selling Renesas Mobile as a separate company makes a lot of sense. Why would they suffer from the rest of the company debts? Do you think if Qualcomm buys them, they will save jobs?

  88. David Manners
    June 25, 2012 14:26

    As you correctly say, Vlatko, the mobile busness was sold for a good sum – in fact over $1.6 billion. Yet this money which went to NXP has not resulted in any noticeable growth-producing investment. Why not? Could it be it’s because the money went not to investing for growth at NXP but for paying back the enormous $6 billion of debt imposed by KKR on NXP after the takeover?

  89. Vlatko
    June 25, 2012 14:20

    C’mon, the NXP analysis is very harsh. NXP sold its Mobile business on time for a good sum of money. It did not stand a chance against Qualcomm or others. Same goes for TV business. TV market is terrible, and the business was in a very bad shape. Same goes for Sound Solution. It was a very good deal for both NXP and Knowles. Nobody from Sound Solutions got fired, on the contrary they are very happy.
    NXP reduced half of its debt, it changed its “lazy” Philips culture, it became much faster and focused company. Life is not bad at all in NXP.

  90. 100 mph fastball
    June 24, 2012 18:51

    David, that’s a good point, and I don’t understand exactly what’s the appeal of PE for Renesas’ creditors either.
    It’s certain not money — Japanese mega banks are flush with cash — they have more than 1 trillion USD in excess deposits sitting on their books with nowhere to go.

  91. David Manners
    June 24, 2012 09:20

    Oh good, fast ball 100 mph, that’s a relief.. KKR’s methods seem totally antithetical to Japanese culture. Can’t think why Hitachi Mitsubishi NEC and the banks would want them even as a minority shareholder.

  92. 100 mph fastball
    June 23, 2012 22:21

    KKR may get on board as a minority investor, but I doubt they will be allowed to get anywhere near management control — remember Mitsubishi Electric, Hitachi and NEC combined owns more than 90% of Renesas shares, and the bulk of the financial support will come from Japanese mega banks.

  93. David Manners
    June 22, 2012 23:12

    Spot on Keith but I don’t think people have forgotten that.

  94. Keith
    June 22, 2012 17:39

    What people seem to forget when they discuss NXP is that Philips *wanted* to get out of semiconductors. Frans van Houten got a huge price out of KKR and Philips subsequently rewarded him with the position of CEO (of Philips).

  95. David Manners
    June 22, 2012 11:43

    I can imagine, Terry, these things can have horrible consequences and the attitude of private equity companies is: ‘We don’t care’.

  96. Terry
    June 22, 2012 11:35

    Sometimes a tree can carry on growing after it’s blown down or badly damaged, and somehow some parts of NXP have survived the PE butchery. Mr Jansen is lucky to be one of the few.
    But many whole divisions were axed, things which could have been profitable with correct management. Like the TV ICs, these had the best picture quality performance in the class, but that was sold off the Trident, who sole it on to Sigma, who are now on the verge of bankruptcy.
    For many people this disrupted their lives and their careers. For some of us it was a kick towards a better future, I’m now an employee of Bosch, a company with largely private ownership and a long-term strategy of investment. I don’t miss the yearly redundancy rounds at Philips/NXP one little bit. For some others it was very negative, and I know some who’ve yet to get their lives back on track after losing their jobs.

  97. David Manners
    June 22, 2012 11:17

    Better results? [Anonymous] the profits and revenues are about the same as they were when KKR bought the company in 2006 – six years without growth and you call that a better result?

  98. David Manners
    June 22, 2012 11:13

    I’m very glad to hear it Rene. You speak, of course, as a survivor. Would all those people who were eliminated in the carnage, and their families, agree with you? And what has it all been for? NXP’s revenues and profits are about the same as they were before KKR bought it in 2006 and the debts are still huge. It was debt-free when KKR bought it. How much more could NXP have done without the $6 billion debt burden KKR imposed on it? Could it have doubled or tripled in size these last six years instead of simply stagnating at around $4 billion revenue a year?

  99. Anonymous
    June 22, 2012 09:25

    Not only bad things happened to NXP after the take-over by private equity. NXP has a much clearer strategy and product portfolio now than ever before. It has multiple solid market positions, and much more in the pipeline. NXP is alive and kicking…
    Mannersims often lack balance…
    Rene Jansen, NXP

  100. Anonymous
    June 22, 2012 08:17

    NXP is alive and well for some of us, the way you write this article anyone would think NXP semiconductors was on its knees.
    Selling off parts of the company that are less than profitable is hardly asset stripping, more streamlining for better results.

  101. JohnT
    June 22, 2012 05:00

    The MBA mantra now is that owners and stockholders can operate unchallenged. And yet I read that 70% of stock trades are now held for 11 seconds. But if I own some land, I am not at liberty to cut down a forest or put up buildings without permission. And to continue down that line, the freedom of my fist ends where your nose starts. But these PE clowns can come in and commit violence to employees and customers. And being thrown out of a job is violent, far worse than a punch on the nose.
    They’ve proven that they cannot create wealth in the manner of a Steve Jobs. They don’t understand their businesses but manage by their ridiculous ‘metrics’. If they were flying an aircraft, their metrics would say “we’re losing altitude, reduce weight by cutting off the engines and wings”.
    Everyone who comes into contact with PE seems to lose money while the PE firms get fatter and fatter. Blackstone stock holders are way down from that IPO. Those who bought into Freescale’s partial IPO a year ago are down 50%.

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