Fox­conn of­fers $5.3 bil­lion for Sharp

The Pak Banker - - COMPANIES/BOSS -

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.

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