Sharp Shares Dip After Report of Wider Losses in Fiscal 2015

  • The Japanese company is in final takeover talks with Foxconn
  • Sharp has said it probably missed forecasts because of China

Sharp Corp. shares fell after the Nikkei reported that the electronics manufacturer may post a wider loss for the current fiscal year than analysts had anticipated.

Sharp is in the final stages of negotiations with Foxconn Technology Group, which is seeking to acquire the maker of Aquos televisions after years of wrangling. Foxconn has held off on signing a final deal for more than a month as it looks more closely at Sharp’s finances, especially its performance in the current quarter. 

The Osaka-based company is on track to post an operating loss of 90 billion yen ($794 million) and net loss of 200 billion yen for fiscal 2015, which ends March 31, the Japanese newspaper said. Sharp said last week that full-year earnings probably missed forecasts because of a deterioration in China demand. Sharp and Foxconn have reached broad agreement on an acquisition plan, and directors of both companies will vote on it Wednesday, the Nikkei reported.

“The report of annual losses is having some impact, but there is also the issue of dilution on which there is very little clarity,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo, referring to the amount of shares that Sharp may issue as part of the Foxconn deal. “It will take some time after completion of the deal and Sharp earning showing actual improvement. It’s probably short-term, individual investors that are moving the shares now.”

The shares of Sharp closed 0.8 percent lower at 130 yen in Tokyo on Tuesday, after earlier declining to a low of 123 yen. The Nikkei 225 Stock Average slipped 0.2 percent.

Sharp is projected to post an operating loss of 24 billion yen and net loss of 114 billion yen, according to the average of analysts’ estimates compiled by Bloomberg.

Foxconn is seeking to cut the amount it will pay for equity in Sharp to about 389 billion yen, one person familiar with the matter has said. The Taiwanese company will probably still pay about 100 billion yen for preferred shares that the banks own, though the payment may be delayed, the person said. Terry Gou, Foxconn’s chairman, had initially agreed a month ago to buy Sharp for more than 600 billion yen, but later pushed for a lower price.

Foxconn will be able to delay its purchase of the banks’ 200 billion yen in preferred shares for about three years, the Wall Street Journal reported Tuesday, citing people familiar with the matter. Foxconn will also cancel a side agreement to buy the land beneath a Sharp plant in Sakai, Japan for 45 billion yen, the newspaper reported.

Hon Hai Precision Industry Co., Foxconn’s flagship company, said on Sunday it will hold a board meeting on March 30 as scheduled, where it may discuss the Sharp deal depending on the stage of negotiations, according to a statement to the Taiwan stock exchange. Sharp said on Monday it aims to reach the agreement as soon as possible. Sharp’s banks are ready to push back the deadline for most of the company’s 510 billion yen in loans and credit lines beyond March 31, people with knowledge of the matter said earlier.

(A previous version of this story corrected the net loss figure in the third paragraph.)

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