Just hours after winning a board vote to take control of Japanese electronics maker Sharp Corp, Hon Hai Precision Industry Co (鴻海精密) said in a surprise reversal that it would postpone signing a definitive agreement because of “new material information.”
Under an agreement announced by Sharp, Hon Hai — the parent company of Foxconn Technology Group (富士康) — would get control over the company by spending ￥484.3 billion (US$4.3 billion) to buy additional shares. The Taiwanese company said it would not finalize a deal until the situation with the new information is resolved.
Hon Hai’s response cast uncertainty over a deal that Sharp had outlined in detail just hours before, and was seen as a sign of Japan’s growing openness to foreign acquisitions. The board of the century-old consumer electronics maker had to choose between Innovation Network Corp of Japan’s plan to restructure by spinning off businesses, or staying whole under a foreign parent.
Photo: Kyodo News via AP
Hon Hai, the main assembler of Apple Inc’s iPhone, is aiming to take over one of the largest suppliers of screens for phones and tablets.
“That puts the entire deal in jeopardy,” Jefferies Group LLC analyst Atul Goyal wrote in a report.
Hon Hai put out a one-paragraph statement late yesterday after Sharp disclosed the agreement terms.
It read in its entirety: “We acknowledge receipt of a notice today from Sharp’s board choosing us as their preferred partner. After receiving new material information from Sharp yesterday morning, we have accordingly informed Sharp last night [before the board meeting on Wednesday] that we will have to postpone any signing of a definitive agreement until we have arrived at a satisfactory understanding and resolution of the situation.”
The new information is a list of about ￥350 billion of contingent liabilities at Sharp, the Wall Street Journal reported, citing unidentified people familiar with the matter.
Sharp had no immediate comment on Hon Hai’s statement.
“It’s odd that after chasing a company for four years you wouldn’t do your due diligence and find out about off-balance sheet contingent liabilities far ahead of striking a final agreement,” Sanford C Bernstein & Co analyst Alberto Moel said.
Under the announced deal, Foxconn would control 65.9 percent of Sharp after buying new shares at ￥118 apiece, or 32 percent less than Wednesday’s closing price.
Sharp shares fell 14 percent after details of the deal were announced, with the stock finishing at a nine-month low of ￥149 yen. Hon Hai’s shares closed 2.6 percent higher yesterday, before Sharp outlined details of its deal.
“It isn’t a victory for Sharp shareholders, and I’m not at all sure if this is a victory for Foxconn and its shareholders may see that money simply evaporate,” Goyal said by telephone.
Hon Hai chairman Terry Gou (郭台銘) is seeking to broaden Foxconn’s remit, transforming it into a company that also makes key electronics components and devices. Foxconn had proposed a total rescue plan worth about ￥660 billion, a person familiar said previously.
As part of the deal announced by Sharp, Foxconn would buy ￥100 billion of preferred shares owned by Mizuho Financial Group and Mitsubishi UFJ Financial Group, or half of each bank’s holdings. Mizuho ended 2.7 percent higher while MUFJ closed up 1.8 percent.
Sharp would remain an independent company and keep the brand under new ownership, it said in a statement.
The Japanese company, which pledged to maintain employment levels, would work with Foxconn on next-generation high-end flexible displays for smartphones and other devices.
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