Will Infineon Be Forced to Pay Qimonda $4.2B?

The 2006 spinoff of Qimonda AG was meant to improve profitability and lessen capital expenditure requirements for {complink 2565|Infineon Technologies AG} but is turning into a nightmare for the German company. In a press release today, Infineon said Qimonda's insolvency administrator wants it to pay €3.35 billion ($4.2 billion) plus interest to settle outstanding litigation resulting from its alleged failure to capitalize the former business unit properly.

The administrator initially asked Infineon to pay €1.71 billion. Infineon did not say why the amount has been nearly doubled.

Infineon is trying to boost revenue growth. Bloomberg reported this month that Peter Bauer, the newly appointed CEO, had given a cautious outlook for 2012 and said orders had fallen slightly, due to weak demand in southern Europe that countered modest improvement in Asia.

Against this backdrop of weakening sales, the Qimonda request is getting a spirited response from Infineon, which said it disagrees with the bankruptcy administrator both on the amount requested and the basis for the request.

In a response to the initial request, Infineon said the administrator had claimed that “the value of the memory business contributed to Qimonda AG as a non-cash contribution in connection with two capital increases in the spring of 2006 was not only not equivalent to the price of the new shares issued in return, namely Euro 600 million in total, but was actually negative.” The company said it had “made a detailed examination of the value of the non-cash contribution, will continue to vigorously defend itself against the claims, and remains confident about the outcome of this lawsuit.”

When Infineon decided to spin off its memory operation as Qimonda, pricing in the DRAM market was sinking, and few participants were turning a profit. The huge capital expenditure required to remain competitive in the sector was dragging down Infineon's more profitable business units. It seemed like a good idea at the time to spin off the operation, contribute assets and other resources, and get out of the memory business.

Qimonda was the second-largest memory maker in the market at the time of the spinoff, but it couldn't hold that position, and it slowly slid into liquidation. A court ruling against Infineon would be financially devastating for the company. It reported €2.2 billion in cash and short-term investments at the end of the first quarter, and even though it had only €205 million of long-term debt (for a net cash position of approximately €2 billion), it would still have to borrow heavily to foot a bill that large.

8 comments on “Will Infineon Be Forced to Pay Qimonda $4.2B?

  1. _hm
    June 16, 2012

    Infineon must refuse charges and fight it in court. This will get process and delayed and out of court settlement will be mush less. Did not Infineon published risk statement when formulated Qimonda? This may save them.



    June 16, 2012

    I do not understand why the amount being asked doubled all of a sudden. Valuing non-cash contributions is also notoriously difficult.  I hope it works out well for Infineon.

  3. bolaji ojo
    June 16, 2012

    I believe to win the insolvency administrator would have to prove Infineon intentionall underfunded Qimonda. I really don't know how that can be confirmed. It points to a challenge for companies spinning off units to shareholders simply because the market conditions are no longer as profitable as they once were.

    In the past also, we've seen leverage buyout specialists load heavy debt burdens on acquired companies (Freescale and NXP are examples). I don't recall details but it's possible some shareholders might have also complained about these transactions.

  4. bolaji ojo
    June 16, 2012

    Infineon needs to win this case or at least not lose too badly. What the bankruptcy administrator is asking could cripple Infineon if it received an adverse ruling.

  5. _hm
    June 16, 2012

    German Government may get involved in this type of case for out of court settlement. If not, so many job will be jeopardised.



  6. bolaji ojo
    June 17, 2012

    A well-placed nudge to settle? That might be best for all.

  7. Barbara Jorgensen
    June 18, 2012

    Forcing Infineon to pay — which might be the correct thing to do under the law — would be wrong for the electronics industry. I realize this isn't the courts' problem(the industry), but with Europe in an ongoing financial crisis (I've stopped reading the stories at this point) damaging Infineon hurts the overall EU economy.

  8. mfbertozzi
    June 19, 2012

    What happened is showing how is complex the correlation between tangible products market and stock market which could really impact in a negative sense, companies' business and profit especially during a critical phase as we are assisting. And right now, also Germany is involved in.

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