Struggling electronics maker Sharp Corp (6753.T) has decided to give Taiwan’s Foxconn preferred negotiating rights in takeover talks, choosing its more generous offer over a rescue plan from a Japanese state-backed fund, sources with knowledge of the decision said.
Foxconn, known formally as Hon Hai Precision Industry Co (2317.TW), offered to invest around 700 billion yen ($5.9 billion) in Sharp, more than double the amount of investment proposed by the fund, one source said.
Shares in Sharp were 14 percent higher in afternoon trade after the news, giving the company a market value of over 270 billion yen ($2.3 billion).
A takeover by Hon Hai, which assembles various electronics products such as smartphones and television sets for Apple (AAPL.O), Sony Corp (6758.T) and many other major international companies, would vastly expand sales channels for Sharp’s liquid crystal display panels.
The decision comes after months of uncertainty over the fate of the company, whose display panel business has continued to suffer massive losses despite two major bailouts by its banks in the last four years.
A Sharp executive plans to go to Taiwan on Friday to negotiate the deal, which the company hopes to finalise by the end of February, one source said. The sources declined to be identified as they were not authorised to speak with the media.
Sharp said no final decision had been made but declined to elaborate. It is due to brief on earnings later in the day. Foxconn declined to comment.
The state-backed fund, the Innovation Network Corp of Japan (INCJ), had been seen as the preferred choice of some government officials who were anxious to keep jobs and technology in Japan. It had aimed to rescue Sharp by merging Sharp’s LCD business with that of rival Japan Display’s (6740.T).
But many in the industry doubted such “old-school” government intervention could help Sharp survive increasingly fierce competition from South Korean and Chinese rivals. Sources had also said board members were worried that Chinese regulators would not approve an LCD merger with Japan Display.
But the sources also said there was some caution among some Sharp board members over whether a final deal could be reached. One source said the board wanted to keep the option of turning to INCJ in case a deal with Foxconn is not reached.
ANOTHER 100 YEARS
Foxconn’s CEO Terry Gou already owns a 37.6 percent stake in Sharp’s most advanced LCD plant in Sakai, near Osaka, and is credited with the plant’s turnaround. Throughout talks so far, Gou had sought to reassure Japanese officials he was serious about turning around the century-old company.
“We don’t want to destroy this company. We want to keep this company for another 100 years,” Gou told reporters on Sunday. “Working together with us is the right decision.”
Taiwan’s local media last year reported him saying that he was confident of making Sharp profitable in three years if he was allowed to take over the company.
Analysts said the deal will give Foxconn control of one of the world’s most advanced display manufacturing sites. The screen is one of the most expensive components in smartphones.
“Hon Hai’s vast network of clients can help absorb Sharp’s LCD panel output,” said Teruo Asamoto, professor at Kyushu Sangyo University, said. “Hon Hai, for its part, can consolidate its position as a contract manufacturer by taking in Sharp’s display technology.”
Sharp and Foxconn signed an agreement in March 2012 to form a capital and strategic partnership. Those talks collapsed after Sharp’s share price plunged in the face of larger-than-expected losses, although Gou personally took a stake in the Sakai plant.