Nec Electronics Corporation (Nece) Case Study
INTRODUCTION
In early July 2007, the New York based hedge fund Perry Capital proposed to raise its stake in NEC Electronics Corporation (NECE), the then publicly listed subsidiary of Japanese conglomerate, NEC Corporation, from 4.8 percent to 25 percent. The offering was ¥5,000 a share, at about 60 percent premium. Perry’s investment in NECE traced back to late 2005, the year its first exposure to Asian markets, with the initial investment cost at around ¥3,200 a share. Perry believed the intrinsic value of NECE was to release after restructuring its business strategy, albeit NECE was expected a loss in FY2005. This paper studies the investment of Perry Capital in NECE, and particularly looks at Perry’s consideration to increase its stake in NECE to 25% at that time.
INVESTMENT OPPORTUNITIES IN JAPAN
As shown in Exhibit 1, the long-lasting deflationary Japanese economy since 1997 probably comes to an end with its CPI rebounded from negative in 2006. At the same time, Bank of Japan has loosed its monetary policy by raising the interest rate above zero since 2006. These two data suggest that Japanese economy is pending an exit from the lost decade. Looking at the Nikkei 225 index shown in Exhibit 2, the bullish trend since 2003 shows the investors are optimistic towards companies’ future earnings. The improving market sentiment stems from the amelioration of Japanese economy, with its GDP growth rate has become positive since 2000, as shown in Exhibit 3. Moreover, Japan’s export industries have been performing well due to its weak currency.
Perry’s investment in NECE can be a sensible move as Japan is one of the leading countries in producing innovative technological products. In 2007, Japanese high-tech products secure a significant market share in the world. These industries include automobile, IT, communications, mechanism and robot, new materials, etc. In addition, Japanese firms allocate significant amount of resources in their product R&D area, the efforts
In early July 2007, the New York based hedge fund Perry Capital proposed to raise its stake in NEC Electronics Corporation (NECE), the then publicly listed subsidiary of Japanese conglomerate, NEC Corporation, from 4.8 percent to 25 percent. The offering was ¥5,000 a share, at about 60 percent premium. Perry’s investment in NECE traced back to late 2005, the year its first exposure to Asian markets, with the initial investment cost at around ¥3,200 a share. Perry believed the intrinsic value of NECE was to release after restructuring its business strategy, albeit NECE was expected a loss in FY2005. This paper studies the investment of Perry Capital in NECE, and particularly looks at Perry’s consideration to increase its stake in NECE to 25% at that time.
INVESTMENT OPPORTUNITIES IN JAPAN
As shown in Exhibit 1, the long-lasting deflationary Japanese economy since 1997 probably comes to an end with its CPI rebounded from negative in 2006. At the same time, Bank of Japan has loosed its monetary policy by raising the interest rate above zero since 2006. These two data suggest that Japanese economy is pending an exit from the lost decade. Looking at the Nikkei 225 index shown in Exhibit 2, the bullish trend since 2003 shows the investors are optimistic towards companies’ future earnings. The improving market sentiment stems from the amelioration of Japanese economy, with its GDP growth rate has become positive since 2000, as shown in Exhibit 3. Moreover, Japan’s export industries have been performing well due to its weak currency.
Perry’s investment in NECE can be a sensible move as Japan is one of the leading countries in producing innovative technological products. In 2007, Japanese high-tech products secure a significant market share in the world. These industries include automobile, IT, communications, mechanism and robot, new materials, etc. In addition, Japanese firms allocate significant amount of resources in their product R&D area, the efforts