- Board will analyze business viability of INCJ, Foxconn offers
- Directors to decide between rescue plans as early as Wednesday
In the past half year, the takeover battle for Sharp Corp. has stirred deep emotions over Japan’s industrial policy, protectionism and the country’s global competitiveness. Now the drama is entering its final days and the outcome will be determined by the more mundane metric of which bid has the best chance of financial success.
As Sharp’s board met Wednesday to evaluate the competing offers, directors plan to focus on the business viability of the bids from Foxconn Technology Group and Innovation Network Corp. of Japan, according to people familiar with the matter, who asked not to be identified because the matter isn’t public. The meeting concluded without a decision and directors will gather again on Thursday, Hiroshi Takenami, a spokesman for Sharp, said Wednesday.
The business viability standard appears to tilt the odds toward a Foxconn victory. The Taiwanese company’s plan is simpler than INCJ’s, quicker to execute and offers more capital for Sharp to revive its business. Foxconn’s only substantial weakness may be a vestige of mistrust left over from a tentative investment deal struck between the two companies in 2012 that was never consummated. INCJ, an investment fund backed by the Japanese government, has detailed strategies for Sharp’s businesses, but its plan would take years to complete and depends on approvals from at least two other companies and antitrust regulators.
“Foxconn’s plan seems to be more attractive in terms of speed," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “Foxconn is also offering more money than INCJ, so Sharp can invest soon after obtaining it.”
At the outset, the battle for Sharp didn’t seem like it would be determined by the value of the bids. The Japanese government looked likely to protect Sharp from foreign acquisition, as it has done many times in the past with struggling domestic companies.
But Foxconn Chairman Terry Gou refused to back down. Last month, he flew to Japan to make his case to Sharp’s board, its bankers and government officials. He also raised his offer from 600 billion to about 660 billion yen ($5.9 billion), a person familiar with the matter has said. Most of the money would be invested directly in Sharp through the purchase of additional shares, while the remainder would go to acquire land from the company and preferred stock.
INCJ would invest 300 billion yen in Sharp through the purchase of shares, people familiar with the matter have said. It has asked Sharp’s main lenders, Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., to cancel the 200 billion yen in preferred shares they own.
Sharp’s existing shareholders wouldn’t be paid anything directly under either plan. The company would likely remain publicly listed with a new controlling shareholder.
INCJ’s proposal is complex in that it requires several steps after the initial investment. The fund plans to combine Sharp’s liquid-crystal display business with Japan Display Inc., a competitor already controlled by INCJ. That deal could raise antitrust scrutiny since it would merge two of the four largest LCD businesses in the world. INCJ also aims to combine Sharp’s home-appliance business with that of Toshiba Corp. to create a Japanese giant that could compete globally.
“There is an antitrust hurdle in the consolidation with JDI,” said Yasuda. “It’s also unclear whether the consolidation of home appliance businesses benefits shareholders, employees and consumers.”
Toyodo Uemura, a spokesman for Sharp, declined to comment, while INCJ would only say it is waiting for Sharp’s decision. Foxconn has said its offer is stronger.
“Foxconn’s bid for Sharp is clearly superior. The competition’s offer remains much lower in terms of money for Sharp,” Foxconn said in an e-mailed statement. “We have a plan that the Sharp board knows we are prepared to immediately implement to make Sharp profitable and return it to its position as a global technology leader.”
Sharp shares declined 2.8 percent to 174 yen in Tokyo, paring this year’s gain to 39 percent.
Foxconn is seeking more control over the production of mobile devices for Apple Inc. and other customers. Foxconn and its flagship Hon Hai Precision Technology Co. are major suppliers of iPhones and iPads. Winning the Sharp deal would give Foxconn direct influence over a maker of glass panels already used in those phones and tablets.
Gou returned to Japan the first week of February after Sharp’s Chief Executive Officer Kozo Takahashi said he wanted to take another month to evaluate the two bids. Gou met with reporters outside Sharp’s Osaka headquarters Feb. 5 and said he wanted to reach a final agreement that day. He wasn’t able to deliver that, but he walked out of the offices into a gaggle of reporters to say Foxconn was closing in on a deal.
"We are 90 percent there, the remaining 10 percent are legal matters and are not a big deal," he said.
Sharp’s board remained split between the two bids as of last week, with the outcome depending on several undecided board members. Though Foxconn has gained momentum, the final decision may come down to the commitments the bidders make to support their business plans.
“Sharp needs to check the certainty of the deals,” said Yasuaki Kogure, chief investment officer at SBI Asset Management Co. “The contract is everything and if the details are not in it, it’s meaningless.”