Foxconn to acquire Sharp at big discount

TOKYO/TAIPEI • Taiwan's Foxconn yesterday agreed to acquire Sharp Corp at a big discount to its original offer after a month of wrangling that sowed more doubts over whether the two companies can work well together and fend off fierce competition from smartphone display rivals.

Foxconn, formally known as Hon Hai Precision Industry, will pay about US$3.5 billion (S$4.7 billion) for a two-thirds stake, nearly US$900 million less than its initial offer, the companies said.

The takeover deal marks the largest acquisition by a foreign concern in Japan's insular technology industry and the end of independence for a 100-year-old company that started out making belt buckles and mechanical pencils.

It would also give Foxconn control of Sharp's advanced screen technology and help strengthen its pricing power with major client Apple.

Highlighting Sharp's dire finances, the ailing display maker has estimated a 170 billion yen (S$2 billion) operating loss for the year, in contrast to its earlier profit forecast of 10 billion yen.

Foxconn said it will buy Sharp's shares at 88 yen per share, a 35 per cent discount to their closing price yesterday.

The two companies had been on the verge of finalising a deal last month but Foxconn postponed at the last minute following the emergence of previously undisclosed contingent liabilities at Sharp.

The hitch revived ill-will from four years ago, when Foxconn agreed to take a stake in Sharp as part of a broader partnership. Sharp then warned of losses and Foxconn walked away as the shares sank.

Analysts said that even without the history of distrust, there was little assurance that the combined company will be able to deflect pricing pressure in the liquid crystal display (LCD) area or beat rivals in OLED, a new screen technology which Apple is expected to adopt for its iPhones by 2018.

"If you are talking about two years, it will be difficult. Three years, there is potential. Five years, then definitely," said Ms Kylie Huang, analyst with Daiwa-Cathay Capital Markets in Taipei.

Shares in Sharp rose 4 per cent yesterday, ahead of the announcement. Taiwan Stock Exchange suspended trading in Foxconn.

Although the Japanese firm became a highly-profitable manufacturer of premium TVs, massive investments in advanced LCD plants failed to pay off as more nimble Asian rivals slashed prices. Two bank bailouts since 2012 have failed to help turn its business around.

The Yomiuri newspaper reported yesterday that the Taiwanese company was planning to overhaul Sharp's management, including replacing its CEO.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 31, 2016, with the headline 'Foxconn to acquire Sharp at big discount'. Print Edition | Subscribe