A look at what will happen next in the world economies
Monday, June 13, 2016
Foxconn Puts $5.5 Billion Sharp Takeover Bid on Fast Track
Further shakeouts in the technology space. Aivars Lode
By Takashi Mochizuki, Eric Pfanner, and Wayne Ma
TOKYO—Taiwanese iPhone assembler Foxconn is pushing to wrap up a takeover of Sharp Corp. within days, people familiar with the situation said Thursday, after the Japanese electronics company said it favored Foxconn’s offer over a government-backed bailout.
Sharp’s embrace of Foxconn marked a striking turnabout in a battle that has come to be seen as a test of Japan’s openness to foreign investment and highlighted the role of its government in restructuring a troubled electronics industry.
Until this week, a government-backed fund, Innovation Network Corp. of Japan, appeared to have the inside track toward a deal with Sharp, even though people familiar with the situation said Foxconn’s $5 billion-plus bid was worth more than twice as much.
But Sharp Chief Executive Kozo Takahashi said Thursday that the company would focus its attention on the talks with Foxconn, without shutting out INCJ entirely.
“The two offers are not equal,” he said. He cited potential synergies and the scale of Foxconn, which has $125 billion in annual sales. It is the largest assembler of Apple Inc. smartphones, making them and a range of other electronics devices at sprawling factories in China.
Foxconn Chairman Terry Gou was traveling Thursday to meet with Sharp officials at the company’s headquarters in Osaka, a person familiar with the situation said. Mr. Gou offered Sharp a ¥200 billion ($1.7 billion) deposit, and lawyers for the two companies were hashing out other details, the person added.
Prime Minister Shinzo Abe has urged Japan to put out a welcome mat to foreign investors, but deals have been scarce. Japanese firms, on the other hand, are pushing overseas aggressively to seek growth beyond a stagnant domestic market. The value of outbound deals has outweighed inbound acquisitions by nearly four to one over the past two years, according to research firm Dealogic.
Sharp’s tilt toward Foxconn “shows that Japan is open to foreign capital,” said Nicholas Benes, a Tokyo-based corporate governance expert. “The government must have realized that this was going to be viewed as a bellwether deal for Abenomics,” as Mr. Abe’s plan to revive Japan’s economy is known.
INCJ, which describes its role as fostering technological innovation and globalization, has helped to keep foreign suitors at bay by taking part in several rescues of troubled Japanese tech firms, including smartphone-panel maker Japan Display Inc. and chip maker Renesas Electronics Corp.
INCJ is also working with Toshiba Corp. in its restructuring, according to people familiar with the matter. Toshiba, which on Thursday forecast a record annual loss of ¥710 billion after a drawn-out accounting scandal, has said it plans to sell its medical-device unit and possibly other divisions.
Should Foxconn succeed in coming from behind to seal a deal, it faces an equally tough challenge: turning around a company suffering from years of decline in its consumer-electronics business and a plunge in prices of the liquid crystal display panels it provides to Apple and other smartphone makers.
On Thursday, Sharp said its net loss in the three months through December more than doubled from a year earlier, to ¥25 billion. Revenue dropped 13%. The company faces a March 31 deadline to repay lenders who have already bailed out the company twice in less than four years.
Sharp’s shares surged 17% on news of its shift toward Foxconn.
Mr. Gou’s pursuit of Sharp goes back to 2012, when he initially reached a deal for Foxconn to take a 10% stake in the Japanese company. The deal unraveled the next year after dismal earnings sent Sharp’s shares plunging.
That history made some Sharp executives reluctant to work with Mr. Gou again, according to people familiar with their thinking. Even after Thursday’s developments, it is possible the two sides could fail to reach a final agreement.
One person briefed on the talks said Sharp’s lenders pressed the company to take a closer look at the Foxconn offer after Mr. Gou traveled to Japan last week to make a personal appeal for a raised bid worth ¥659 billion, according to people familiar with the matter. That compared with an offer from INCJ that was worth no more than ¥300 billion, the people said.
In his presentation, Mr. Gou said Foxconn wouldn’t cut Sharp’s workforce, people familiar with the situation said. Sharp’s lenders believed the larger investment from Foxconn, formally known as Hon Hai Precision Industry Co., would give Sharp a better chance to grow, these people said.
Mr. Takahashi said Sharp and Foxconn had “built a relationship of mutual trust” via an existing partnership called Sakai Display Products.
People familiar with the situation said Sharp was keeping INCJ in the picture as a second option in case the talks with Foxconn fall through.
Foxconn didn’t respond immediately to a request for comment. INCJ said it would continue talks with Sharp.
Sharp’s CEO said a deal with Foxconn could benefit Sharp’s production, sales and materials-procurement operations. He said he would work to prevent a breakup of Sharp, which makes everything from televisions to air purifiers to solar panels, and had no plans at this point to step down.
He also raised the prospect of an alliance with Japan Display Inc., the country’s other major producer of smartphone-display panels. Until now, Japan Display and Sharp, each of which supplies Apple with mobile-device screens, have operated at arm’s length.
For now, the prospect of reviving Sharp appears to outweigh previous concerns at the company and among some Japanese policy makers that the country’s technology might leak overseas.
“It’s no use having that technology if the company is going under,” said Hideyuki Ishiguro, senior strategist at Okasan Securities.