Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Foxconn Technology Group founder and Chairman Terry Gou says he's confident he'll win the battle to take over Japan's ailing Sharp Corp. Investors may want him to be wrong.

The man who disdains Wall Street bankers is himself a poor dealmaker. In the 41 years since Gou founded Foxconn as a maker of plastic TV knobs, he's built the company into a global electronics powerhouse.

Yet Foxconn has made only four acquisitions of more than $1 billion, and 90 smaller ones. The biggest was the $9.9 billion takeover of Chi Mei Optoelectronics, which closed in early 2010. The idea was to combine Foxconn's Innolux Display with Taiwan's second-largest flat-panel maker.

No Big Deal
Foxconn has made only four acquisitions over $1 billion
Source: Bloomberg data

Making that deal, one month after announcing the $1 billion takeover of a smaller panel maker, TPO Displays, Gou was frank: ``Right now in TVs, we don't make any money from panels. We make money from connectors, and supply-chain management."

The three-in-one merger was supposed to change that business model. It didn't. In the five years since then, Innolux has lost more money than it's made, and shareholders are 80 percent worse off. While the panel industry overall has slumped, Innolux stands out as the biggest loser among the top four.

Takeover Trouble
Innolux has lost more money than it's made since merger
Source: Company data compiled by Bloomberg News. Note: 2015 Innolux data is estimate

Gou's trouble with takeovers goes beyond the numbers. When he sat on stage early on a Saturday morning to announce the formation of Chi Mei Innolux, he called it a merger of equals, with shared management and Chi Mei Group as the largest shareholder. Within a few years, the Chi Mei name was dropped, along with much of the management, and those who remained talked of being subsumed in ``The Foxconn Way." Cultures clashed and the business lost money.

Investors Hurt
Foxconn's Innolux has fallen 80% since 2010 merger
Source: Bloomberg data

Gou should have known better. His takeover of Premier Image Technology Corp. three years earlier (his second-largest deal) was supposed to give Foxconn a leg up in the burgeoning digital-camera and module business. Instead, again in his own words four years later: ``I spent too much money to acquire it, then realized my internal knowledge is better than their internal knowledge." Put simply, he overpaid for shoddy technology, and now barely ranks in the lucrative market for smartphone cameras.

Now there's the $5 billion attempt to take over Sharp. Alarm bells should be ringing already.

Take, for instance, the fact that Gou didn't manage to close the 9.9 percent purchase he attempted four years ago, which led him to say later that he was fooled in his negotiations with Sharp management. The problem was that Sharp wanted the money, but it didn't want to give Foxconn a hand in management, and submit to the Foxconn Way.

If the target really doesn't want you, you'd be well advised to think twice. As Bernstein analyst Alberto Moel put it in a note last week: ``It would involve Hon Hai having to restructure an open can of worms at a distance, and with no real experience in Sharp's business or corporate idiosyncrasies." Hon Hai is Foxconn's biggest unit and the vehicle for most of Gou's deals.

Then there's the fact that Gou is offering double the value that the market, and rival bidder Innovation Corp. of Japan, put on Sharp.

To be sure, the INCJ offer isn't a like-for-like comparison because it involves further capital and likely spinoffs. But if on the face of it nobody else thinks Sharp is worth this much, Gou may need to remember that those who don't learn from history are bound to repeat it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net