Private equity firm Francisco Partners has pulled out of the bidding for Sanyo Electric Co. Ltd.'s chip unit as the auction draws to a close, sources familiar with the situation said.
Japan's Sanyo is expected to pick the winner of the auction by the end of this month, but the process could be delayed. Sanyo is hoping to raise 150-200 billion yen ($1.3-1.7 billion) from the sale but resistance from bidders may force it to accept less.
The departure of Francisco Partners leaves its allies, Asian regional funds The Longreach Group Ltd, CCMP Capital Asia and Japanese private equity MKS to reformat their bid, sources have said.
Francisco Partners, founded in 1999, focuses on buying technology companies.
The fund became frustrated because it was difficult to gather enough documentation in English to conduct adequate due diligence. Francisco Partners does not have offices in Japan.
The chip unit is also going through tough times. It fell into the red in the April-June first quarter but expects to post an operating profit of 5 billion yen in the full year to March 2008.
The business, now a wholly owned Sanyo subsidiary, suffered when an earthquake damaged a major factory in 2004. Sanyo issued 300 billion yen ($2.5 billion) in preferred shares last year, giving Goldman Sachs and Daiwa Securities SMBC a 24.5 percent stake each in terms of voting rights.
Among the other private equity firms bidding for the chip business are Cerberus Capital Management LP/
The Blackstone Group is in a consortium with CVC Asia Pacific and Vestar. A rival consortium comprises Bain Capital and Japanese private equity firm Advantage Partners.
Japanese chip maker Rohm Co. Ltd. is yet another contender but is unlikely to be selected as the preferred bidder, a source said.
Goldman and Daiwa Securities SMBC, who are working as advisers for the loss-making consumer electronics maker, are in the process of whittling down the 20 or so firms who had expressed an interest in the unit.
Osaka-based Sanyo spun off the chip-making business last year in a move widely seen as a prelude to selling it. The unit posted 181.27 billion yen in sales in the year ended March, and an operating profit of 4 billion yen.
Shares in Sanyo closed 0.6 percent higher at 177 yen, marginally outperforming the Tokyo stock market's electrical machinery index, which added just 0.07 percent.
Sanyo spokesman Akihiko Oiwa said nothing had been decided on the sale of the chip unit. Francisco Partners was unavailable to comment immediately.
(Additional reporting by Nathan Layne and Kentaro Hamada)