Foxconn takeover takes Sharp twist

The deal, under which Taiwan's Foxconn would get control of Japan's Sharp by spending 484.3 billion yen (S$6 billion) to buy additional shares, now looks to be in doubt. Foxconn said it was postponing any signing of a definitive agreement due to "new
The deal, under which Taiwan's Foxconn would get control of Japan's Sharp by spending 484.3 billion yen (S$6 billion) to buy additional shares, now looks to be in doubt. Foxconn said it was postponing any signing of a definitive agreement due to "new material information".PHOTO: EUROPEAN PRESSPHOTO AGENCY

TOKYO • Just hours after winning a board vote to take control of Japanese electronics maker Sharp Corp, Taiwan's Foxconn Technology Group said in a surprise reversal that it would postpone signing a definitive agreement because of "new material information".

Under an agreement announced by Sharp, Foxconn would get control of the company by spending 484.3 billion yen (S$6 billion) to buy additional shares. The Taiwanese company said it will not finalise a deal until the situation with the new information is resolved.

"That puts the entire deal in jeopardy," Mr Atul Goyal, an analyst at Jefferies Group, wrote in a report.

Foxconn's response cast uncertainty over a deal that Sharp had outlined in detail just hours before, and was seen as a sign of Japan's growing openness to foreign acquisitions.

The board of the century-old consumer electronics maker had to choose between Innovation Network Corp of Japan's plan to restructure by spinning off businesses, or staying whole under a foreign parent.

Foxconn, the main assembler of Apple's iPhone, is aiming to take over one of the largest suppliers of screens for phones and tablets.

Foxconn, the parent of Hon Hai Precision Industry, put out a one-paragraph statement late yesterday after Sharp disclosed the agreement terms.

The statement said: "We acknowledge receipt of a notice today from Sharp's board choosing us as their preferred partner. After receiving new material information from Sharp yesterday morning, we accordingly informed Sharp last night (before the board meeting) that we will have to postpone any signing of a definitive agreement until we have arrived at a satisfactory understanding and resolution of the situation."

The new information is a list of about 350 billion yen of contingent liabilities at Sharp, The Wall Street Journal reported, citing unidentified people familiar with the matter. "It is odd that after chasing a company for four years, you wouldn't do your due diligence and find out about off-balance sheet contingent liabilities far ahead of striking a final agreement," said Mr Alberto Moel, an analyst at Sanford Bernstein.

Under the announced deal, Foxconn would control 65.9 per cent of Sharp after buying new shares at 118 yen apiece, or 32 per cent less than Wednesday's closing price.

Chairman Terry Gou is seeking to broaden Foxconn's remit, transforming it into a company that also makes key electronics components and devices.

Foxconn had proposed a total rescue plan worth about 660 billion yen, a person familiar with the plan said previously.

As part of the deal announced by Sharp, Foxconn would buy 100 billion yen of preferred shares owned by Mizuho Financial Group and Mitsubishi UFJ Financial Group, or half of each bank's holdings.

Sharp would remain an independent company and keep the brand under new ownership, it said in a statement. The Japanese company, which pledged to maintain employment levels, would work with Foxconn on next-generation high-end flexible displays for smartphones and other devices.

Sharp was once a highly profitable manufacturer of premium TVs and a favoured screen supplier to Apple. But it has struggled in recent years as massive investments in advanced LCD plants failed to pay off amid price competition with Asian rivals, and two bank bailouts since 2012 did little to help turn its business around.

BLOOMBERG, REUTERS

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A version of this article appeared in the print edition of The Straits Times on February 26, 2016, with the headline 'Foxconn takeover takes Sharp twist'. Print Edition | Subscribe