Infineon Plans $1 Billion Capital Hike, Apollo Involved

FRANKFURT (Reuters) – Struggling German chipmaker Infineon (IFXGn.DE), working to ease its financing needs, plans to raise 725 million euros ($1.0 billion) in a capital increase with the backing of U.S. investor Apollo.

Infineon plans to launch a rights issue of up to 337 million shares with a subscription price of 2.15 euros, the company said in a statement on Friday.

U.S. activist investor Apollo Management LP [APOLO.UL] agreed to buy all shares in the rights issue that are not taken by existing shareholders.

Apollo could end up owning a stake of up to 29 percent, just under the threshold of 30 percent that by German law would force it to make a takeover offer for the entire company.

Infineon, which has been buffeted by a slump in global chip prices, said it would use the proceeds to repay debt and strengthen its liquidity position.

Its shares gained 2.1 percent to 2.635 euros by 0921 GMT, outperforming a firmer German technology index .TECDAX.

Five-year credit default swaps on Infineon tightened by about 100 basis points to 525 basis points, a trader said, having been as wide as 755 basis points earlier this week.

CDS are over-the-counter contracts that protect investors against defaults on corporate bonds over a given time period.

Commerzbank analyst Thomas Becker said recent positive news flow from Infineon had paved the way for a capital increase and a buy-in by Apollo but the size was a surprise.

“We calculated a financial gap of 100 million euros to 400 million euros,” Becker said in a research note.

“We believe that Apollo has pushed hard to grab a significant stake and that Infineon was keen on getting a new strategic shareholder on board.”

However, Becker said Apollo’s agenda was unclear but that the U.S investment firm “will do the utmost to remove Infineon’s valuation discount of 50 percent to market multiples”, possibly leading to a sale of Infineon’s wireless unit or “to complete asset stripping”.

Infineon is Europe’s biggest automotive chip supplier and competes with privately owned Dutch NXP as well as Texas Instruments (TXN.N) and STMicroelectronics (STM.PA) (STM).

Infineon plans to use proceeds from the rights issue to repay convertible bonds maturing in June 2010, of which a nominal amount of 522 million euros is outstanding, and to repay exchangeable bonds maturing in August 2010, of which a nominal amount of 48 million euros is outstanding.

Two people familiar with the plans had told Reuters late on Thursday that a capital increase was imminent.

Infineon, which posted a net loss from continuing operations of 258 million euros in its second quarter, has pledged to come up with a refinancing plan by the summer.

This week Infineon announced that it planned to sell its wireline communication unit (WLC), it’s only profitable business, to a U.S investor for 250 million euros.

In May, Infineon generated proceeds of 180 million euros with a convertible bond issue.

With the sale of WLC it has four divisions left: Automotive, Wireless Solutions, Industrial & Multimarket and Chip Card & Security.

On Wednesday, Infineon Chief Executive Peter Bauer ruled out further divestments after the sale of WLC.

By Nicola Leske

(Additional reporting by Natalie Harrison; Editing by Hans Peters)