Hon Hai-sharp tie-up shaken by share price drop

TOKYO: Hon Hai Precision Industry Co, the assembler of Apple Inc iPads, may seek to renegotiate a planned 133 billion-yen (US$1.7bil) alliance with Sharp Corp after the Japanese TV maker’s shares fell to the lowest in 34 years.

Hon Hai agreed to buy 9.9% of Sharp, Japan’s largest maker of liquid-crystal displays, for 550 yen a share. Sharp shares have plunged 31% below that to 382 yen, meaning if the deal closed yesterday at the agreed price, Hon Hai would have a paper loss of US$261mil, equal to 52% of the Taipei-based manufacturer’s net income last quarter.

“With the current stock price, Hon Hai won’t be willing to pay that much, and given Hon Hai has more say in this alliance than Sharp, the Taiwanese company may request a review,” said Takashi Watanabe, an analyst at Goldman Sachs Group Inc.

Sharp fell to its lowest level since 1978 after the Osaka-based company forecast a wider-than-expected annual loss for the current fiscal year because of its unprofitable solar, panel, and audiovisual and communications divisions. Sharp Display Products Corp is counting on a separate 66 billion-yen tie-up with Terry Gou, whose Foxconn Technology Group includes Hon Hai, and related investment companies to return to profitability.

Simon Hsing, the spokesman for Hon Hai, said the company remained committed to the deal, and he declined to comment on whether it would seek to renegotiate terms, including the price.

“This is the most important deal we’ve had recently to realise our goal of greater vertical integration in the supply chain,” Hsing said.

“We worked on it for nine months and plan to proceed,” he added. — Bloomberg