Sharp shares plunge after takeover thrown into question

AFP: Sharp shares nosedived yesterday, after the Taiwanese multinational that owns Foxconn said it would delay its multi-billion-dollar takeover to review new information it had received about the ailing Japanese giant.

Analysts had cheered Hon Hai Precision’s bid for Sharp -- the first foreign acquisition of a major Japanese electronics firm -- which has teetered on the edge of bankruptcy for years.
But after markets closed Thursday, Hon Hai, the world’s biggest electronics supplier, said it would not ink the deal until it had a chance to digest fresh information Sharp had supplied.
It declined to give details of the documents concerning one of Japan’s best-known companies, a leader in smartphone screen technology.
However, Bloomberg News, citing people familiar with the matter, said it involved potential liabilities topping 300 billion yen (US $ 2.7 billion) that Hon Hai would have to assume in a takeover.
Media earlier reported the value of the buyout could reach 700 billion yen, including Sharp’s debt.
A Taiwan-based Foxconn spokesman declined to comment, as did a Sharp spokeswoman in Tokyo.
Japan’s leading Nikkei business daily said Foxconn had prior knowledge of the possible liabilities, which reportedly could include restructuring costs and layoffs.

It added that Sharp has dispatched executives to a meeting yesterday with Hon Hai officials in mainland China, where the Taiwanese company has more than one million employees.
The deal would see Hon Hai take a 65.9 percent stake in Sharp worth 489 billion yen.
 Sharp’s shares slumped yesterday, tumbling 11.4 percent to close at 132 yen.
The takeover had appeared to conclude a years-long courtship of Sharp by Terry Gou, Foxconn’s colourful billionaire owner, which counts iPhone maker Apple among its top clients.
Some analysts were scratching their heads at the last-minute holdup.

“Uncertainties remain for the deal, after the two companies issued contradicting announcements,” said Alberto Moel, an analyst at Sanford C. Bernstein in Hong Kong.
“We maintain our view that Hon Hai is likely overpaying for the transaction given the high execution risks to turn around Sharp’s various business segments.”

Hideki Yasuda, an analyst at the Ace Research Institute in Tokyo, said the deal would likely still go ahead, adding that Japanese accounting rules did not require Sharp to disclose the reported liabilities.
“I suspect that Sharp only communicated that information because it had agreed with the buyout offer and was making other details available on top of what it released under normal disclosure practices,” Yasuda said.
“My sense is that there is no change to the broad outline of the deal. This is only a procedural step.”
Sharp had been mulling rival offers from Hon Hai and the public-private Innovation Network Corporation of Japan (INCJ).
Sharp and Hon Hai have worked together for years on large-sized screen technology, including for televisions, and jointly operate a liquid crystal display (LCD) panel plant in Japan.

Still, the Japanese government had reportedly been concerned about Sharp’s key technologies falling into the hands of a foreign firm.
Despite its bleeding balance sheet, the company is still a leader in LCD technology, and the firm remains one of Japan’s best-known corporate brands overseas.
But the century-old company piled up eye-watering losses after the 2008 global financial crisis and has struggled through a restructuring plan that has yet to pull it out of the red.