In a surprise, Sharp accepts rescue deal but Hon Hai does not


Japan Inc. appeared to be losing one of its crown jewels Thursday after troubled electronics giant Sharp accepted a rescue package from Hon Hai of Taiwan, turning down a bid from a government-backed consortium.

But surprisingly, Hon Hai Precision Industry Co. said within hours that it would postpone signing the deal because of “new material information” from Sharp Corp.

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

It read in its entirety: “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 have accordingly informed Sharp last night (before their board meeting on 2/25) 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 material information is a list of about ¥350 billion of contingent liabilities at Sharp, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Sharp had no immediate comment on Foxconn’s statement.

“It’s 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 Alberto Moel, an analyst at Sanford C. Bernstein & Co.

Sharp said the board reached the decision to accept Hon Hai’s rescue plan on Thursday morning after talks the previous day ended without accord.

Hon Hai submitted a bid of around ¥660 billion, whereas Innovation Network Corporation of Japan proposed an investment of around ¥300 billion.

Hon Hai’s offer includes an investment of ¥489 billion through the purchase of new shares in Sharp. Hon Hai also plans to buy ¥100 billion in preferred shares held by Sharp’s creditor banks.

If the deal goes through, Hon Hai will own 66 percent of Sharp, which will become the biggest Japanese electronics maker ever acquired by a foreign company.

The government responded to the news by saying it hopes Sharp has grasped a lifeline. Speaking to reporters in the Diet on Thursday, industry minister Motoo Hayashi said he hopes the company will grow under Hon Hai, adding that its continued operation will ensure the employment of its workers and contribute to local economic growth.

INCJ issued a statement wishing Sharp success.

Hon Hai, which makes Apple Inc.’s iPhones, is expected to use Sharp’s advanced technology to develop next-generation organic LED displays and thereby diversify its portfolio.

It is believed to have agreed to pay ¥100 billion first as a deposit to allay doubts about the Taiwanese firm after a 2012 agreement on a capital tie-up fell apart.

At the time, Hon Hai had agreed to buy a 10 percent stake but balked after Sharp’s shares fell. In Thursday’s trading on the Tokyo Stock Exchange, Sharp’s stock closed at a nine-month low of ¥149, down 14.4 percent.

The INCJ had planned to invest ¥300 billion in Sharp and provide a ¥200 billion credit line while asking Sharp’s creditors for additional support, including wiping out the preferred shares.The public-private fund was also looking to merge Sharp’s LCD business with Japan Display Inc., a maker of small and midsize LCDs it set up to combine the LDC units of other struggling Japanese electronics makers so they could stay in Japanese hands.

On a broader scale, the fund hoped to build momentum for future realignment of the electronics industry.

Hon Hai Chairman Terry Gou said he hoped to reach a deal with Sharp by the end of the month.

Sharp, one of the biggest manufacturers of LCDs for smartphones and tablets, has struggled in the face of stiff competition from foreign rivals.

For the April-December period, Sharp posted a group net loss of ¥108.33 billion, much bigger than its ¥7.16 billion loss a year earlier.

It has taken a series of restructuring steps to improve its financial standing by seeking early retirement from its staff and selling its head office in Osaka.

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