Foxconn’s Sharp Deal May End as Banks Give Taiwanese an Exit

Foxconn Technology Group’s plan to buy a stake in Sharp (6753) Corp. may end after the Japanese TV maker signed loans from banks, giving the Taiwanese manufacturer a reason to exit its commitment to help the unprofitable company.

Sharp’s talks with Foxconn may continue until the expiration of a self-imposed, one-year deadline in March, an executive for the Osaka-based company said Sept. 28. The two probably would continue cooperating even without an investment, both companies have said.

Foxconn Chairman Terry Gou has backed away from buying a stake in Sharp after falling demand for TVs and display panels prompted the company to widen its annual loss forecast eightfold. Foxconn Group said it would renegotiate an earlier deal to buy 9.9 percent of the company for 67 billion yen ($863 million) as shares have fallen 61 percent since that announcement. Sharp said Sept. 28 it received 360 billion yen in financing from two banks.

“Sharp and Foxconn kept up the charade until the point there was an out for both of them, which the loan provides, and neither of them seem too excited about the deal now,” said Albert Moel, a Hong Kong-based analyst at Sanford C. Bernstein. “I think Terry Gou had every intention to do the deal, but even he couldn’t have envisioned that the price would drop so much.”

Seeking Help

Sharp shares were up 0.5 percent to 194 yen as of 11:30 a.m. in Tokyo trading and are down 71 percent this year. The stock is the worst performer on Japan’s benchmark Nikkei 225 Stock Average.

Japan’s biggest maker of liquid-crystal displays signed the funding package with its lenders last week. Sharp earlier presented its main banks with a revival plan that included cutting more than 10,000 jobs, or 18 percent of its workforce, and selling overseas plants as well as U.S. solar developer Recurrent Energy LLC, people with knowledge of the proposal said Sept. 26.

The 100-year-old inventor of mechanical pencils had turned to Foxconn, whose flagship Hon Hai Precision Industry Co. is listed in Taipei and makes Apple Inc. iPads, in an attempt to restructure its unprofitable LCD business. Sharp also sold a stake in its largest LCD factory to Gou, who funded the deal from his own money, and renamed it Sakai Display Products Corp.

Apple Relationship

Sharp plans to continue collaboration with Foxconn even without investment from the Taiwanese manufacturer, the Sharp executive said. The two companies are considering joining forces on smartphones and displays, he said.

“It matters for Sharp whether it can build a closer relationship with Apple,” said Mitsushige Akino, who oversees the equivalent of about $600 million in assets at Ichiyoshi Investment Management Co. in Tokyo.

Hon Hai spokesman Simon Hsing said the companies are keen to cooperate in many areas. He declined to comment on the status of investment talks or whether it may buy Sharp factories around the world. Miyuki Nakayama, a spokeswoman for Sharp, didn’t respond to a message left on her mobile phone.

In June, after Sharp’s shares had fallen 29 percent below the deal price, Gou reiterated his commitment to the transaction, saying it was based on a long-term strategic partnership and not short-term share value.

Later the same month, the Taiwanese company, through its Hon Hai and Foxconn Technology Co. (2354) units, said it would post a loss of NT$6.4 billion ($218 million) for the second quarter on the pending transaction because of the decline. The loss would be reversed the following quarter, it said later.

While Foxconn had also seen Sharp’s share price decline as an opportunity to increase its holding beyond the original 9.9 percent plan, Sharp management and board members resisted because the Japanese feared it may be absorbed by the Taiwanese, Hon Hai Chief Financial Officer Huang Chiu-lian told Bloomberg News in June.

Sharp in August predicted a net loss of 250 billion yen for the 12 months ending March 31, widening its earlier forecast for a loss of 30 billion yen.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net. Mariko Yasu in Tokyo at myasu@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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