By Sam Nussey and Tim Kelly
TOKYO (Reuters) -Semiconductor materials maker JSR Corp said on Monday it has agreed to be bought by a government-backed fund for about 909.3 billion yen ($6.35 billion), in a deal that signals a deepening state role in efforts to revive Japan's chip industry.
The move by Japan Investment Corp (JIC), overseen by the powerful trade ministry, is the latest in a series of increasingly muscular government steps to regain Japan's lead in advanced chip production and maintain its edge as a maker of materials and tools used in their manufacture.
JSR's market capitalisation was 677 billion yen ($4.73 billion) at Friday's market close. Its shares rose by 21.7%, their daily limit, ahead of the official announcement.
JIC plans to launch a tender offer in late December offering 4,350 yen per share and taking the company private. Mizuho Bank and the government-backed Development Bank of Japan (DBJ) will provide financing.
The deal comes amid deepening tensions between the U.S. and China as President Joe Biden's administration builds domestic chip manufacturing capacity. Japan and the Netherlands have joined the U.S. in restricting exports of chipmaking tools to China.
JSR is a top supplier of photoresists, which are light-sensitive chemicals used to etch patterns on wafers.
"Japan has a monopoly, with China and others yet to develop this technology," said Kazuhiro Sugiyama, consulting director at research firm Omdia.
Shares in peer Tokyo Ohka Kogyo surged 10% on the news, while Sumitomo Chemical and Shin-Etsu Chemical rose 2% each.
"The market is speculating that funds will flow to other small and medium-sized materials makers," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management.
JSR approached JIC about the potential backing, an industry ministry official said.
The company needs to invest heavily in production capacity as global demand for chips grows, as well as in the development of materials that will be needed to manufacture advanced chips, said the official, who declined to be named because they are not permitted to speak with media.
While Japan has a long and mixed record of intervening to save floundering industrial players, the move to buy a profitable company that has already undergone restructuring risks criticism for potential overreach.
JIC said last November it had expanded the size of its buyout fund by 4.5 times to 900 billion yen.
"JIC is starting here. It would surprise me quite a bit if that is where they stopped," Travis Lundy of Quiddity Advisors wrote in a note on Smartkarma.
JSR, which was set up in 1957 as a government-backed producer of synthetic rubber, reported a 20% jump in sales to 408.9 billion yen in the year ended March, while operating profit declined 33% to 29.4 billion yen.
JSR and Shin-Etsu have market shares of 39% and 37%, respectively, in the ArF photoresist market, according to Nomura Securities, with JSR's clients including Samsung Electronics, Taiwan Semiconductor Manufacturing Co and Micron Techology.
In the advanced extreme ultraviolet (EUV) photoresist market, Tokyo Ohka Kogyo is adding share from top clients in South Korea and Taiwan, Nomura said.
"JSR is falling behind a little in EUV. They will be able to invest in advanced materials," said Omdia's Sugiyama of the JIC deal.
Shares in JSR, which, unusually for a Japanese company, has a foreign-born CEO, had already gained 25% year-to-date at Friday's market close. Activist investor ValueAct Capital is a major shareholder and has an executive on the board.
($1 = 143.1200 yen)
(Reporting by Sam Nussey, Tim Kelly, Miho Uranaka, Makiko Yamazaki and Noriyuki Hirata; Editing by Jamie Freed and Muralikumar Anantharaman)