July 13, 2001
Major Business News
Infineon Issue Raises $1.09 Billion
For Investment and to Pay Debt
Dow Jones Newswires
BERLIN -- German chip maker Infineon Technologies AG Friday raised 1.27 billion euros ($1.09 billion) in funds, and in so doing removed a weight that had been dragging down the shares in recent days.
Infineon sold 52.17 million new shares at 25 euros a piece to mostly institutional investors in Germany, the United Kingdom and the U.S. The placement of a greenshoe of 7.8 million shares is still pending. A greenshoe is an option to issue new shares.
1Infineon Plans an Offering Despite Negative Sentiment (July 10)
2Infineon Aims to Raise $1.4 Billion With New 60-Million-Share Issue (July 3)
3Infineon, Bookham Issue Warnings Amid Troubles in Technology Sector (June 21)
The banking consortium, lead-managed by Goldman Sachs, has until Aug. 12 to buy these shares. If the greenshoe is completely placed, Infineon's take from the share issue will rise to 1.5 billion euros.
Infineon is a unit of German electronics and engineering group Siemens AG. Siemens spun off a 29% stake in Infineon in an initial public offering in March 2000. Its direct holding in Infineon was diluted to 51% after the share issue. Siemens aims to completely exit the semiconductor unit, but has agreed not to sell any shares for the next 90 days.
With the issue 3.8 times oversubscribed, Infineon believes these remaining shares will also be sold, the company said.
"The placement was clearly a success given these market conditions," said Henning Kelch, a fund manager at ADIG Investment. "The dark clouds that have been hanging over the Infineon shares have been removed."
Financial markets welcomed the end of the capital increase. In morning trading, Infineon's share price climbed 3.9% to 27 euros.
The issue price was higher than expected, with market observers expecting a price of 24 euros and many fund managers saying they hoped for 22.50 euros.
Nevertheless, Infineon did make concessions. The issue price represents a discount of 3.8% from its Thursday closing price of 26 euros. The price is also well under the price that Infineon's shares were trading at when the capital increase was announced. When the company said it was going ahead with the capital increase on July 2, the company was hoping to raise 1.7 billion euros.
"The results of the capital increase demonstrates the trust investors have in Infineon," said Chief Executive Ulrich Schumacher.
That trust was severely tested in recent days: Shares repeatedly hit all-time lows, as the market feared the flood of new shares.
Difficult Time for Chip Company
The capital increase was carried out at a difficult time for Infineon, which is Europe's second-largest semiconductor company. Infineon issued a profit warning in mid-June due to the collapse of demand for computer chips. Despite these poor conditions, the company needs the funds for future capital expenditures and to pay off short-term debt.
"It is our goal to maintain solid investment levels in strategic projects, even in a declining semiconductor market," said Mr. Schumacher. "Only those that continually invest in the market cycles can take full advantage of the next upturn."
The new funds primarily will be used to complete a factory in Dresden, Germany, which is due to open this autumn. The production plant is a key project for Infineon. It will be the world's first large-scale chip factory utilizing new technology that will allow more chips to be produced from a single silicon disk than current processes and will reduce production costs by 30%.
Although the Dresden plant will give Infineon a short-term competitive edge, many market experts are concerned that chip companies keep producing at a time when demand is near nonexistent and companies are losing money on every chip they sell.
The spot price for standard memory chips, for instance, is currently at about $0.90, while it costs Infineon $3.40 to produce such a chip.
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