Hon Hai Precision Industry Co (鴻海精密) and Japan’s Sharp Corp worked through the weekend to salvage their US$6 billion deal, with revisions to terms the Japanese firm put forth last week, people familiar with the matter said.
Bankers and lawyers are going through a list of Sharp liabilities that could exceed ￥300 billion (US$2.6 billion), a last-minute stumbling block in Hon Hai’s effort to take control of the struggling Japanese company, according to the people, who asked not to be identified, as the talks are not public.
It is not clear if Hon Hai, known as Foxconn Technology Group (富士康科技集團) outside Taiwan, would lower its offer or change its bid in some other way, the people said, adding that any material changes would require Sharp’s board to vote again.
Foxconn founder and chairman Terry Gou (郭台銘) has fought for months to take over Sharp, battling a competing offer from a once-favored domestic bidder, Innovation Network Corp of Japan (INCJ).
Foxconn offered a package worth in excess of ￥600 billion — more than twice INCJ’s bid — with most of the money going into Sharp through the purchase of additional shares.
Only hours after Sharp’s board approved its offer on Thursday, Foxconn said it received new information from Sharp and would not go through with the deal until it resolved the issues.
“It’s a complicated situation. It’s difficult to judge whether Foxconn is shaking up Sharp or they really need some time to check the facts,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.
Sharp’s stock fell 2.3 percent to ￥129 in Tokyo trading yesterday. Its shares fell 21 percent last week.
Foxconn has made it clear it was surprised by the latest information from Sharp. On Friday, Foxconn said it had received new documents on Wednesday last week — the day before the Sharp board decision — that had never been submitted in previous talks.
Its financial adviser, JPMorgan Chase & Co, and legal adviser Baker & McKenzie are discussing the matter with Sharp to clarify the situation and seek solutions, it said.
Sharp has said it did nothing wrong. On Friday, the Osaka-based company said it has properly disclosed contingent liabilities and is discussing them with Foxconn.
The Japanese firm has appointed Toshihiko Fujimoto, formerly chairman of its electronics unit, to the post of “head of strategic alliance,” it said in a stock exchange filing yesterday.
In his new role, Fujimoto will lead the negotiations with Foxconn and oversee their subsequent cooperation, Sharp spokesman Toyodo Uemura said.
Though the contingent liabilities, which are triggered by events such as restructuring or layoffs, could reach ￥300 billion, they could also be much lower, the people familiar with the matter said.
The two companies have a history of fraught negotiations. In 2012, Gou announced plans to invest in Sharp and buy shares at ￥550 a piece, but the deal was never completed as the maker of Aquos TVs posted record losses and its stock tanked. Last week’s deal involved buying shares at ￥118 each.
Foxconn, the primary assembler of iPhones and iPads for Apple Inc, offered a premium for Sharp in a bid to add its business of making the glass displays for Apple’s devices, one of the most valuable components. Gou might be reluctant to take on additional financial costs as he tries to make the high-stakes deal pay off.
Under the plan announced by Sharp, Foxconn would get control over the company by spending ￥484.3 billion to buy additional shares at a discount and give Gou and Foxconn 65.9 percent of the Japanese company.
Foxconn would also pay ￥100 billion for preferred shares held by lenders Mizuho Financial Group and Mitsubishi UFJ Financial Group, and additional cash for other assets.
Existing shareholders would receive nothing directly under the plan and Sharp would remain a publicly traded company. Sharp would keep its brand under new ownership and pledged to maintain employment levels.
Gou and Sharp CEO Kozo Takahashi also met over the weekend as part of the negotiations, one person familiar with the matter said.
Sharp might be under greater pressure to make the deal work. Besides the share price decline, it also faces the expiration of credit lines with its banks at the end of next month.
“Sharp wants to close the deal by the end of March, but Foxconn doesn’t have to hurry up because INCJ has already given up. It’s a favorable situation for Foxconn,” Yasuda said.
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