Sharp rises on prospects of res­cue deal with Ja­pan fund

The Pak Banker - - COMPANIES/BOSS -

Sharp Corp. shares rose as the com­pany moves to­ward a res­cue plan with govern­ment-backed In­no­va­tion Net­work Corp. of Ja­pan rather than a po­ten­tially larger of­fer from Tai­wan's Fox­conn Tech­nol­ogy Group.

Sharp is learn­ing to­ward a deal with INCJ that would al­low it to keep its tech­nol­ogy within Ja­pan and co­op­er­ate more closely with do­mes­tic com­pa­nies, peo­ple fa­mil­iar with the talks said Thurs­day, ask­ing not to be named be­cause the mat­ter is pri­vate. The com­pany's stock rose 3.1 per­cent at the close in Tokyo on Fri­day, af­ter ear­lier climb­ing as much as 12 per­cent.

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 trou­bled 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 stock has lost more than half its value in the past three years. Twelve an­a­lysts in­clud­ing Goyal rec­om­mend sell­ing the shares, out of 14 tracked by Bloomberg .

"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. Sharp, one of the world's largest mak­ers of dis­plays for smart­phones and tablets, could gain more busi­ness from Ap­ple and other Fox­conn cus­tomers like Ama­ Inc and Xiaomi Corp.

The pos­si­bil­ity of a govern­ment bailout first sur­faced in 2012, when Sharp teetered on the brink of bank­ruptcy af­ter its Aquos TVs lost mar­ket share to those from Sam­sung Elec­tron­ics Co., LG Elec­tron­ics Inc. and lower-cost Chi­nese ri­vals. The Osaka-based com­pany is set to post a com­bined 1.22 tril­lion yen of net losses over five years to March 31. INCJ, formed in 2009 to help fund in­no­va­tion and keep key tech­nolo­gies within Ja­pan, has had mixed suc­cess in re­viv­ing com­pa­nies. Ja­pan Dis­play's shares are trad­ing 70 per­cent less than their ini­tial pub­lic of­fer­ing price.

The fund's in­vest­ment in Re­ne­sas Elec­tron­ics Corp., formed in 2010 by com­bin­ing the strug­gling semi­con­duc­tor op­er­a­tions of Mit­subishi Elec­tric Corp., Hi­tachi and NEC Corp., fared bet­ter. Shares of the sup­plier of chips to au­tomak­ers more than dou­bled in 2013, then gained 33 per­cent in 2014, driven by de­mand for chips used in cars with in­creas­ingly com­plex elec­tronic sys­tems.

"I can imag­ine an INCJ pro­posal that would split the com­pany into the bad Sharp, which is LCD pan­els, and with the rest as good Sharp," Goyal said. "With INCJ it would go much smoother, much eas­ier. Sharp, INCJ and Ja­pan's govern­ment are likely to worry about the job losses. More­over, INCJ Fund says Sharp needs just $2.5bil­lion to re­vive growth.

A cash infusion of 300 bil­lion yen ($2.5 bil­lion) is enough to plug losses and re­vive growth at Sharp Corp., ac­cord­ing to the head of the govern­ment-backed fund con­sid­er­ing a res­cue of the strug­gling elec­tron­ics maker. Toshiyuki Shiga, chief ex­ec­u­tive of­fi­cer of In­no­va­tion Net­work Corp. of Ja­pan, said the fund is con­duct­ing due dili­gence but hasn't reached a fi­nal agree­ment on bail­ing out the com­pany laden with al­most 800 bil­lion yen of to­tal debt. INCJ is con­sid­er­ing an in­vest­ment of about 300 bil­lion yen, split­ting the funds be­tween Sharp's liq­uid-crys­tal-dis­play panel busi­ness and re­main­ing op­er­a­tions, a per­son fa­mil­iar with the dis­cus­sions said last week. "Our goal is a re­turn to growth. Af­ter sep­a­rat­ing the LCD busi­ness, we'll stop the hem­or­rhag­ing and im­ple­ment a growth strat­egy for the rest of the com­pany," Shiga told re­porters af­ter an un­re­lated govern­ment-panel meet­ing in Tokyo.

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