Foxconn offers $5.3 billion for Sharp

Taiwan's Hon Hai Precision Industry Co. Ltd, also known as Foxconn, has offered ¥625 billion ($5.3 billion) to buy Sharp Corp. and has no plans to replace top management, a gesture aimed at reassuring Japanese authorities worried about an overseas takeover, the Wall Street Journal reported.

Shares in the embattled electronics maker, which is considering a separate proposal from a state-backed fund, the Innovation Network Corporation of Japan (INCJ), jumped more than 20% after the report. Sources have told Reuters that INCJ is in the lead to rescue Sharp and plans to merge its LCD business with rival Japan Display Inc., in which the fund already has a major stake.

The fund is also considering merging Sharp's home appliances business with Toshiba Corp.'s, sources have also said. Media reports have said the fund is offering ¥300 billion in a bailout, and sources have said such a bailout would also involve Sharp's lenders offering at least ¥200 billion by converting debt to equity. Government officials have told Reuters that they prefer a Japanese buyer because they want Sharp's display technology to stay in Japan.

Sharp, once a leader in high-end displays for smartphones and TVs, has struggled with persistent pricing pressure from Asian rivals. It received a second bailout worth $1.7 billion in May, but has shown few signs of a turnaround. Japanese media had previously reported that Foxconn was offering as much as ¥700 billion for Sharp, although Reuters has not verified such a bid.

Previous tie-up talks between Foxconn and Sharp fell through in 2012 after the Japanese company balked at demands that it said would have given the Taiwanese firm too much control. The two remained in contact and jointly operate a plant in Osaka, western Japan, that makes large LCD panels. Shares in Sharp were last trading up 7%.

Meanwhile, Sharp Corp. is leaning toward accepting a rescue by government-backed Innovation Network Corp. of Japan over a potentially larger offer from Taiwan's Foxconn Technology Group, according to two people familiar with the talks.

A deal with INCJ would allow Sharp to keep its technology within Japan and cooperate more closely with domestic companies, said the people, who asked not to be named because the matter is private. The fund hasn't yet made an official offer and there's no guarantee a definitive agreement will be reached, the people familiar said.

INCJ may invest about 300 billion yen ($2.6 billion), splitting the funds between Sharp's LCD panel business and remaining operations, one of the people said. Foxconn has offered about 600 billion yen to buy the company and expects a decision this month, a separate person familiar with the talks said.

INCJ's investment would be the most recent example of Japan's government providing support to struggling domestic companies to keep technology out of the hands of foreign rivals. Four years ago, INCJ created Japan Display Inc. from the struggling screen units of Toshiba Corp., Sony Corp. and Hitachi Ltd. with a 200 billion yen infusion.

"There is only one option -- when was the last time a Japanese company in good shape or bad was allowed to sell its technology to another Asian company?" said Atul Goyal, an analyst at Jefferies Group LLC.

Sharp's stock climbed as much as 25 percent in Tokyo after news of Foxconn's offer on Thursday. Shares closed 5.8 percent higher at 128 yen. Sharp stock has lost more than 60 percent of its value in the past three years. Goyal, together with 13 out of 15 analysts tracked by Bloomberg, recommends selling the shares. INCJ didn't return phone calls seeking comment.

"We're talking with several companies about the structural improvement of liquid-crystal-display business. We don't comment on the details of individual talks," said Yoshifumi Seki, a spokesman for Sharp. Foxconn is interested in expanding its business beyond assembly of products and logistics, by adding a wider array of components to its offerings.