Thursday, February 25, 2016

Foxconn Hesitates on $6 Billion Bid for Sharp – New York Times

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Terry Gou, chief executive of Foxconn, speaking with reporters at the headquarters of Sharp in Osaka, Japan, on Thursday. Credit European Pressphoto Agency

TOKYO — Sharp, the ailing Japanese consumer electronics company, on Thursday approved a $ 6 billion takeover offer from Foxconn of Taiwan, the giant contract manufacturer that churns out products for Apple and other foreign brands — though a final agreement between the companies still hung in the balance.

If approved, the deal would be the largest acquisition of a Japanese technology company by an overseas buyer. Sharp confirmed its intention to accept Foxconn's offer in a regulatory filing, but Foxconn said it was holding off signing a final contract while it reviewed unspecified "new material information."

Foxconn said in a statement it had told Sharp it "will have to postpone any signing of a Definitive Agreement until we have arrived at a satisfactory understanding and resolution of the situation."

Sharp's board chose Foxconn over a government-backed investment fund that also sought control of the company but offered less money.

For many in Japan, the contest for Sharp was a proxy for a larger economic and political struggle, one between traditional government-led industrial policy and the forces of an open global market.

The government fund, the Innovation Network Corporation of Japan, has been trying to rescue Japan's shrinking television and smartphone display industry — or at least keep it in local hands — by buying up display businesses and combining them into a single national champion.

But the sale of Sharp, the largest Japanese maker of liquid crystal displays, to a foreign company would represent a major setback for that effort. Sharp, by choosing Foxconn over Innovation Network — which is supported by influential Japanese government officials and armed with taxpayer money — effectively opted for the market.

Sharp indicated this month that it was leaning toward Foxconn, which was offering twice as much cash as the government fund.

Under the deal outlined in Sharp's filing, Foxconn would pay just under 500 billion yen, or about $ 4.5 billion, for new shares to be issued by Sharp, giving it control of two-thirds of the company's voting stock. It would also acquire ¥100 billion of nonvoting preferred shares that are held by banks that have extended loans to Sharp, plus another ¥25 billion in shares held by another private investor.

Innovation Network, in contrast, offered to invest ¥300 billion in Sharp. It said the real value of its bid was larger, however, because it would have been able to use its influence with Japanese banks to get more funding. Emergency loans from the banks have kept Sharp afloat as its business has deteriorated in recent years.

Sharp has lost about $ 10 billion over the last half-decade as foreign rivals have grabbed its market share and the price of LCDs has plunged. It reported a net loss of ¥24 billion last quarter.

Until this month, Innovation Network was widely seen as the company's most likely savior. In 2012, Innovation Network combined the LCD businesses purchased from Toshiba, Hitachi and Sony into a new company, Japan Display. The company has struggled, however, and its backers had hoped that adding Sharp's production volume would make it more competitive.

Foxconn, also known as Hon Hai Precision Industry, owns vast contract manufacturing operations in China but has been seeking to expand into new areas. Its billionaire founder, Terry Gou, bought a minority share in an underused Sharp LCD factory in western Japan in 2012. Foxconn offered to buy a stake in Sharp itself at the time, but that part of the deal fell apart over a price disagreement.

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