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Sharp Says Foxconn Talks Could Continue Beyond March Deadline

Sharp Corp. (6753)’s talks with Taiwan’s Foxconn Technology Group over a capital tie-up could continue beyond a March deadline if a deal isn’t reached by then, a senior executive at the Japanese electronics maker said.

While the two companies previously agreed on a March 26 target, negotiations could be extended “depending on the situation,” the executive said at a press briefing given yesterday on condition of anonymity. Sharp, the maker of Aquos televisions and supplier to Apple Inc. (AAPL), has been renegotiating terms of a proposed stake sale to Taipei-based Foxconn after its share price plunged amid widening net-loss estimates.

Sharp, Japan’s largest maker of liquid-crystal displays, on Nov. 1 forecast a record net loss of 450 billion yen ($5.7 billion) for the year ending March 31 amid falling demand for its panels and TVs. The company hasn’t been able to reach a new deal with Foxconn, founded by billionaire Terry Gou and which initially agreed in March to buy a 9.9 percent stake in Osaka- based Sharp for 550 yen a share, or 67 billion yen.

“Sharp has to develop a revival plan that assumes it won’t get the planned investment from Foxconn,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “Foxconn can’t justify to its shareholders a purchase of Sharp stock above the current market price.”

Sharp rose 2 percent to 155 yen in Tokyo trading yesterday, narrowing this year’s decline to 77 percent, the worst performer among more than 1,600 companies in the MSCI World (MXWO) Index of developed nations.

‘On Schedule’

The Japanese company assumes a deal with Foxconn can be reached, President Takashi Okuda said Nov. 1.

“Everything is on schedule,” Gou said Nov. 7 when asked about the talks.

In July, Sharp sold a stake in an LCD factory in Sakai, central Japan, to Gou, who will jointly run the 10th-generation facility that is the most advanced in the industry. The tie-up is a “major success” and has increased operation rates at the plant, the senior Sharp executive said yesterday.

Faced with falling demand for TVs and a surging yen that erodes the repatriated value of overseas sales, Sharp, Sony Corp. and Panasonic Corp. plunged to record losses last year. After failing to come up with hit products to challenge Samsung Electronics Co. and Apple, the Japanese consumer-electronics companies have resorted to closing factories, eliminating jobs and cutting costs to revive profit.

Fitch Ratings cited Sharp’s growing liquidity risks in cutting the company’s credit rating Nov. 2 by six levels to B-, a junk rating defined as “highly speculative.”

‘Material Doubt’

Sharp said in a financial statement on Nov. 1 there was “material doubt” about its ability to survive.

Interest-bearing debts swelled to a record 1.2 trillion yen as of Sept. 30, the company said Nov. 1. The equity-capital ratio as of Sept. 30 stood at 10.3 percent, less than a third of what it was a year ago, the company said.

The electronics maker sought banks’ support to help refinance its commercial papers after its credit rating was cut, and the company secured 360 billion yen in loans in September from Mizuho Financial Group Inc. (8411) and Mitsubishi UFJ Financial Group Inc., its two main banks.

Sharp pledged as collateral a total of 741 billion yen in assets as of Sept. 30, up from 19 billion yen six months earlier, according to its quarterly report. Assets under collateral included 259 billion yen of properties, 201 billion yen of inventory and 44 billion yen of machine equipment, according to the report.

Convertible Bonds

With 200 billion yen of convertible bonds maturing in 2013, Sharp may have to ask the state Enterprise Turnaround Initiative Corp. or Innovation Network Corp. of Japan for money, Fumiaki Sato, co-founder of Sangyo Sosei Advisory Inc., a turnaround advisory firm in Tokyo, said earlier this month.

Sharp hemorrhaged 103 billion yen in cash from operations in the first half of the year. A bailout may follow the precedent set by the government rescue of Japan Airlines Corp. two years ago that wiped out shareholders while keeping planes in the air.

Sharp must put together a plan to revive its fortunes before any injection of public funds can be considered, Akira Amari, the policy chief of Japan’s main opposition Liberal Democratic Party, said in an interview this month.

The company has no plan to seek public funds, the senior Sharp executive said at yesterday’s briefing.

Sharp’s turnaround plan includes seeking 2,000 voluntary retirements, cutting salaries, selling assets and reducing capital investments, the company said Nov. 1. The manufacturer is considering several partnerships as talks with Foxconn continue, Okuda has said.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

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

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