Fox­conn takes con­trol of Sharp in re­duced buy­out

The Pak Banker - - COMPANIES/BOSS -

Fox­conn Tech­nol­ogy Group Chair­man Terry Gou fi­nally clinched a deal to buy Sharp Corp. af­ter years of pur­suit, bring­ing to­gether the main as­sem­bler of Ap­ple Inc.'s iPhones with the elec­tron­ics maker that built Ja­pan's first tele­vi­sion sets.

The par­ent of Hon Hai Pre­ci­sion In­dus­try Co. is pay­ing 389 bil­lion yen ($3.5 bil­lion) for a con­trol­ling stake in Sharp, a drop of 100 bil­lion yen from an agree­ment forged a month ago. As a re­sult, Fox­conn and its af­fil­i­ates will get 66 per­cent of the Ja­panese com­pany for 88 yen per share, both com­pa­nies said in state­ments on Wed­nes­day.

"Fi­nally, it's de­cided," said Hideki Ya­suda, an an­a­lyst at Ace Re­search In­sti­tute in Tokyo. "This is pos­i­tive for Sharp, al­though it's hard to imag­ine that Fox­conn won't have to keep pro­vid­ing funds." The deal's con­sum­ma­tion caps weeks of drama, when the ac­qui­si­tion re­peat­edly looked like it could fall apart. Gou had ap­peared on the verge of grasp­ing his prize a month ago, when Sharp's board chose Fox­conn over a ri­val bid from the state-backed In­no­va­tion Net­work Corp. of Ja­pan. But af­ter learn­ing about li­a­bil­i­ties at Sharp, Gou pushed back the fi­nal agree­ment to ne­go­ti­ate a lower price.

Fox­conn's to­tal pay­ment will prob­a­bly in­crease. Un­der the agree­ment a month ago, the com­pany had said it would spend an ad­di­tional 100 bil­lion yen to ac­quire pre­ferred stock from Sharp's main banks. Nei­ther side dis­cussed that trans­ac­tion in Wed­nes­day's announcements. Peo­ple familiar with the mat­ter said last week that Fox­conn would buy the shares, but de­lay pay­ment. Toy­odo Uemura, a spokesman for Sharp, de­clined to com­ment.

The agree­ment also in­cludes a new clause giv­ing Fox­conn a backup plan that would let it buy Sharp's dis­play busi­ness if the deal falls apart any­time be­fore Oct. 5. If that hap­pens, Sharp will give Fox­conn, or a third party des­ig­nated by Fox­conn, exclusive ne­go­ti­a­tion rights for three months to buy the unit.

Two of Sharp's 13 direc­tors voted against the re­vised agree­ment, an un­usual sign of protest in con­sen­sus-driven Ja­pan. The pre­vi­ous deal had won unan­i­mous board sup­port.

Gou is seek­ing to broaden Fox­conn's re­mit, trans­form­ing the con­tract man­u­fac­turer into a com­pany that will not only make key com­po­nents and as­sem­ble de­vices, but also sell elec­tron­ics prod­ucts to con­sumers. The bil­lion­aire's pur­suit of Sharp stretches back to 2012, when he of­fered to buy shares at 550 yen apiece in a deal that was never com­pleted.

"We have much that we want to achieve and I am con­fi­dent that we will un­lock Sharp's true po­ten­tial and to­gether reach great heights," Gou said in the state­ment.

Sharp also said af­ter the mar­ket's close that it ex­pects an op­er­at­ing loss of 170 bil­lion yen for the fis­cal year end­ing on Thurs­day, reversing an ear­lier forecast for a profit of 10 bil­lion yen. Sharp said its main banks, Mizuho Fi­nan­cial Group and Mit­subishi UFJ Fi­nan­cial Group, agreed to ex­tend their dead­line for the pay­ment of 510 bil­lion yen in loans and credit lines by a month. Sharp's stock rose 3.9 per­cent to 135 yen in Tokyo trad­ing.

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