Chipping Away at Japan's Bailout Culture
The battle for Elpida Memory is shaping up as a test case for how Japan treats troubled companies. The failed chip maker's restructuring could have broad implications for the country's other debt-laden firms.</br></br>Elpida sought court protection in February after falling DRAM chip prices and the strong yen left it unable to pay its hefty debts. The company agreed in July to be taken over by Micron Technology of the U.S. for $760 million and the promise of $1.8 billion later out of Elpida's cash flow. This could mean banks and other secured creditors would receive 70% of what they are owed, while unsecured creditors like bondholders would get just 20%-30%.</br></br>Some bondholders are livid, saying the Micron offer is too low, "vague and confusing." They value the company at $3.8 billion and have filed a rival plan with the Tokyo court that would see a yet-unnamed sponsor take over.</br></br>The battle probably wouldn't have happened in Japan's recent past. Previously, investors mostly rolled over while a restructuring was forced upon them. Often, the government would force a shotgun takeover of a collapsed firm by one if its peers. The failed company would be a drag on the rescuer, bad loans would fester, employees would remain in make-work jobs, and the resulting bloated company would weigh on the broader economy.</br></br>But Japan Inc. probably isn't in the bailout business anymore. The government no longer seems to have the stomach for forced mergers, and with public debt more than double gross domestic product, Tokyo can't stump up more taxpayer cash for moribund firms. No wonder Elpida looked to the U.S. for a white knight. Also Sharp, faced with a $16 billion debt load and rapidly falling earnings, also has sought a rescue overseas, from Taiwan's Hon Hai Precision Industry.