Renesas Electronics Announces Share Issue through Third-Party Allotment, and Change in Major Shareholders, Largest Shareholder who is a Major Shareholder, Parent Company and Other Related Companies

(PresseBox) (Tokyo, Japan, ) Renesas Electronics Corporation (TSE: 6723, hereafter "Renesas" or "the Company"), a premier supplier of advanced semiconductor solutions, at a meeting of the board of directors held today, resolved to issue shares through Third-Party Allotment to The Innovation Network Corporation of Japan ("INCJ"), Toyota Motor Corporation, Nissan Motor Co., Ltd., Keihin Corporation, Denso Corporation, Canon Inc., Nikon Corporation, Panasonic Corporation and Yaskawa Electric Corporation, and (hereafter the "scheduled subscribers").

In implementing the Third-Party Allotment, one of the scheduled subscribers, INCJ, is required to file for regulatory approval in relation to business mergers with competition authorities in various countries, and the payment pertaining to the Allotment of Third Party Shares is subject to approval from all the applicable regulatory authorities. Furthermore, implementation of the Third-Party Allotment will result in changes to major shareholders, the largest shareholder who is a major shareholder, the parent company and other related companies, as outlined herein.

I. Outline of the Third-Party Allotment
1. Outline of the offering

2. Purpose and Background of Offering
(1) Operating Environment and Initiatives to Date Japan's major industries, especially manufacturing, have faced significant threats from a series of severe, non-cyclical events which have brought about significant changes. These include the global financial crisis sparked by the 2008 Lehman Brothers collapse, natural disasters like the Great East Japan Earthquake and flooding in Thailand last year, the current rekindling of the European fiscal crisis and slowdown in China's economy, and destabilization of relations between Japan and countries in East Asia. Given also the significant influence of the persistent strong yen and the rapid changes in the domestic Japanese consumer equipment market, semiconductor industry players are also facing tough operating conditions, as exemplified by the bankruptcy of a DRAM manufacturer in February 2012.

As a result of this global economic situation and these unprecedented changes in the Japanese market, we posted large net losses in two consecutive terms following the April 1, 2010 integration of the former NEC Electronics and Renesas Technology (consolidated net losses of ¥115,023 million in the year ended March 2011, and ¥62,600 million in the year ended March 2012). Similarly, we forecast a consolidated net loss of ¥150 billion for the year ending March 2013 due to implementation of business and structural measures, as well as a personnel streamlining program, as per our announcement of August 2, 2012. Moreover, there has been considerable concern with regard to balance sheet deterioration; consolidated net assets as of September 30, 2012 were ¥106,820 million (47% of the ¥226,500 million recorded as of March 31, 2012).

Since the April 1, 2010 integration, we have steadily implemented various initiatives, built around integration synergies and structural reforms. We realized integration synergies including: reduction of material costs through standardization of materials and bulk purchasing; improvement of R&D cost efficiency through integration and focusing of technological assets; and reduction of SG&A costs, including through focusing sales channels and integrating IT systems. The structural reforms involved restructuring of our production sites (including the sale of the Tsugaru and Roseville plants), selection and concentration of businesses, and an early retirement program for around 1,500 employees implemented at the end of March 2011. As a result, we were able to recover following the Great East Japan Earthquake, which struck while these initiatives were being implemented and had a major impact on business, and to cut fixed costs by around 20% over the two years since the integration.

Despite this, we considered it necessary to implement further measures to deal with the abovementioned sharp fluctuations in the global economy and Japanese market. On July 3, 2012, in a release entitled "Renesas Electronics Announces the Direction of Various Measures to Establish Robust and Profitable Structure" we announced further significant restructuring of our domestic production sites and an early retirement incentive program, with a shift toward a more responsive cost structure by making major reductions in fixed costs and relatively increasing variable costs. The early retirement incentive program, as outlined in our announcement of October 16, 2012, received 7,446 applications, and all applicants retired as of October 31. As part of the restructuring of our domestic production sites, as outlined in our announcement of October 12, 2012, the Company, Renesas Eastern Japan Semiconductor, Inc., a wholly owned subsidiary of Renesas Electronics, and AOI ELECTRONICS CO.,LTD. agreed to transfer all stocks of Renesas High Components, Inc. ("RHC"), a wholly owned subsidiary of Renesas Eastern Japan Semiconductor, and Renesas Eastern Japan Semiconductor's partial sales business including the sales staff for the companies outside Renesas group, related to the RHC's contract manufacturing service, aiming to complete on January 1, 2013.

As outlined in our announcement of September 28, 2012, we secured new financing totaling ¥97 billion from our major shareholders and main banks. We also entered into an agreement for a syndicated loan totaling ¥161.1 billion, arranged by our main banks, which allows us to convert short-term debt to long-term debt and secure stable long-term funding. Through these initiatives we have secured enough funding for the foreseeable future to allow us to implement the ongoing structural reforms. We are also in discussions with our major shareholders and main banks regarding changing the terms and conditions on which we borrow to promote the further structural reforms in the future.

(2) Need to Raise Funds
Despite implementing the initiatives described above, the need to invest in growth is increasing. Investment is needed to secure a financial base that can withstand the severe changes described above, and for R&D in key areas, capex, and M&A activity to help earnings recovery. Looking at the financial base first, the Group's cash & equivalents balance had fallen to ¥69.6 billion as of September 30, 2012, equivalent to about one month's sales. This is expected to improve as benefits from structural reform are realized and operating cash flows pick up due to earnings recovery. However, bolstering our financial base is still a pressing matter, as it will allow us to manage our businesses flexibly even if there are significant shifts in the market structure during the process of improvement. Looking at growth investment, as a participant in the semiconductor industry it is vital to invest timely to support future differentiation of our products. Giving utmost priority to a stable financial base while continuing to restrict growth investment would be extremely risky in terms of securing future competitiveness. For example, it may lead to a deterioration of the group's market share.

To address these pressing issues, and to quickly establish a robust framework designed to support the implementation of growth strategies that will allow us to prevail amid tough global competition, as described in detail in "3. Amount, Purpose, and Schedule for Spending Funds Raised," we believe it is of utmost importance to push ahead with radical initiatives driven by rapid management decision-making not constrained by pre-existing frameworks. Accordingly, we have started to look more urgently at securing the funding or increased capital necessary to achieve this.

(3) Details of Consideration of Funding Method and Reason for Choosing the Capital Increase by Third-party Allotment
As described above, we need to rapidly secure the funding or increased capital necessary to support strong future growth. Other than by way of third-party allocation, we also considered securing the funding and capital through a additional borrowing, public offering, and a rights offering. Given that we had recently received the maximum support available from our major shareholders and main banks, any additional borrowing from these major shareholders and main banks, or from our other banks or elsewhere, was not a realistic option. Of the options involving increased capital, we determined that it would be difficult to secure the necessary funding/capital through a public offering given the sustained decline in our share price since the Great East Japan Earthquake, the unclear outlook for our operating environment, and a stock market climate that is not conducive to public offerings. The rights offering option looked promising in terms of the gradual progress of deregulation and considerations of existing minority interest holders. Viewed comprehensively, however, we determined this option was not certain to secure sufficient funding/capital early enough given the fact there were no examples of commitment-type rights offerings in Japan, the liquidity of our shares, and the time expected to take for the process, etc.

This process pointed to a capital increase by way of third-party allocation as the best option for Renesas. We began considering candidates for the allocation from among multiple foreign and domestic investors. Since around spring of 2012 we have received concrete investment proposals from a number of these candidates.

From among these, we determined that the proposal from INCJ had the best potential to contribute to improvements in our corporate value and shareholder value from a longer-term perspective, based on a comprehensive set of considerations, including: that the proposal from INCJ is for the entire amount of the investment and will not impose undue restrictions on our business or that of our stakeholders compared to other proposals; the proposal offers a greater probability of securing the large amount of funding we need rapidly and in a lump-sum compared to other fund procurement methods; and the proposal offers superior opportunities for business synergies with the investors.
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