Daily Management Review

Announcing Retention of Top Management, Foxconn Offers $5.3 Billion for Sharp


Announcing Retention of Top Management, Foxconn Offers $5.3 Billion for Sharp
Around $5.3 billion has been offered to take over troubled Japanese electronics maker Sharp Corp.  by Foxconn, the Taiwanese company that assembles the bulk of the world’s iPhones, reports the Wall Street Journal quoting people familiar with the matter.
Another competing offer by Innovation Network Corp. of Japan, a government-backed investment fund is being reportedly reviewed by Sharp which has been bailed out repeatedly by banks. The fund was weighing a bid of around ¥300 billion, a figure earlier reported by the Nikkei newspaper. , reports the Wall Street Journal. It wasn’t clear whether the INCJ bid would require concessions from Sharp’s main creditors.
Citing the company’s technology in display panels, Japanese officials have expressed concern about letting Sharp come under foreign control. A controlling stake in Japan Display Inc., another major display maker is already owned by Innovation Network Corp. of Japan. Know-how in next-generation panel technology and mass production is shared between the two Japanese panel makers, say officials.
“Japan’s technology is leading the rest of the world and we would like to help make it even more competitive,” industry minister Motoo Hayashi said this week.
Foxconn, formally known as Hon Hai Precision Industry Co., is offering more money for Sharp and a willingness to shoulder all of its debt although INCJ is the preferred buyer among Tokyo officials because it would keep Sharp under Japanese control, reports the newspaper.
Rather than political considerations, those conditions are meant to persuade Sharp’s creditors to make a decision based on the economics of the deal, say sources.
According to Standard & Poor’s, Sharp faces a March due date for repaying a total of ¥510 billion in borrowings. The banking units of Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc are the main creditors of Sharp, according to the company declarations. Sources said that Sharp owes the two banks together between ¥500 billion and ¥600 billion.
Sources said that Foxconn has announced a step meant to reassure Japanese officials worried about a foreign takeover and said that it has no plans to replace Sharp’s top management. Sharp is scheduled to announce its latest quarterly results on February 4 and it is expected that Sharp and its lenders would come at a decision.  
Representatives of Foxconn, Sharp and INCJ declined to comment.
To secure a second rescue in three years, Sharp had turned to its two main banks in May 2015. Sharp makes everything from televisions to solar panels to display panels for Apple Inc.’s iPhones. Sharp suffered a net loss of ¥222 billion in the fiscal year that ended March 2015.
Sharp posted an operating loss of ¥25.2 billion in its most recent half-year results as conditions worsened since May 2015. Citing deteriorating Chinese demand for smartphone displays, Sharp posted an operating loss of ¥25.2 billion in its most recent half-year results.
Terry Gou, Foxconn’s chairman, personally acquired a 38% stake in a Sharp display factory in Sakai, Japan in 2012. At around the same time another deal where Foxconn agreed to buy a 10% stake in Sharp, got unraveled in 2013 after dismal earnings reports sent Sharp’s shares plunging.