Sharp Corp shares nosedived yesterday after Taiwanese billionaire Terry Gou’s (郭台銘) Hon Hai Precision Industry Co (鴻海精密) said that it would delay its multibillion-dollar takeover to review new information it had received about the ailing Japanese giant.
Analysts had cheered Hon Hai’s bid for Sharp — the first foreign acquisition of a major Japanese electronics firm — which has teetered on the edge of bankruptcy for years.
However, after markets closed on Thursday, Hon Hai — the world’s biggest electronics supplier, known as Foxconn Technology Group (富士康) outside Taiwan — said it would not ink the deal until it had a chance to digest fresh information Sharp had supplied.
It declined to give details of the documents concerning one of Japan’s best-known companies, a leader in smartphone screen technology.
However, Bloomberg News, citing people familiar with the matter, said that it involved potential liabilities topping ¥300 billion (US$2.7 billion) that Hon Hai would have to assume in a takeover.
Media earlier reported the value of the buyout could reach ¥700 billion, including Sharp’s debt.
Japan’s leading Nikkei business daily said Hon Hai had prior knowledge of the possible liabilities, which reportedly could include restructuring costs and layoffs.
It added that Sharp yesterday dispatched executives to a meeting with Hon Hai officials in China, where the Taiwanese company has more than 1 million employees.
However, Hon Hai said in a statement that the document it received just the day before Thursday's Sharp board meeting included "material information, most of which was not disclosed during previous discussions between our two companies".
"Teams from both companies... are currently in discussions with the aim of reaching a comprehensive understanding and resolution of the situation. We hope to reach a satisfactory agreement as soon as possible."
Bankers and lawyers are to meet this weekend to sort through the issue with a goal of resolving matters over the next week, a person familiar with the matter told Bloomberg.
The weekend talks would try to determine how much of that debt Hon Hai can avoid taking on if the deal proceeds, a person said.
Gou and Sharp chief executive Kozo Takahashi plan to meet over the weekend as well, the person said.
The deal would see Hon Hai take a 65.9 percent stake in Sharp worth ¥489 billion.
Sharp shares slumped yesterday, tumbling 11.4 percent to close at ¥132 in Tokyo, while Hon Hai shares fell 0.64 percent to close at NT$78 in Taipei.
Sharp has properly disclosed all contingent liabilities and sees no need for further disclosures as it continues to cooperate with Hon Hai on the final agreement, the Japanese company said in a statement yesterday.
Hideki Yasuda, an analyst at the Ace Research Institute in Tokyo, said the deal would likely still go ahead, adding that Japanese accounting rules did not require Sharp to disclose the reported liabilities and that Sharp did not have to set aside money for the liabilities suggests they are more of a latent risk.
“I suspect that Sharp only communicated that information because it had agreed to the buyout offer and was making other details available on top of what it released under normal disclosure practices,” Yasuda said. “My sense is that there is no change to the broad outline of the deal. This is only a procedural step.”
Despite its bleeding balance sheet, Sharp is still a leader in LCD technology and the firm remains one of Japan’s best-known corporate brands overseas.
However, the century-old company piled up eye-watering losses after the 2008 global financial crisis and has struggled through a restructuring plan that has yet to pull it out of the red.
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