Hon Hai Precision Industry Co (鴻海精密) is delaying finalization of its deal for Sharp Corp to get a clear understanding of the Japanese company’s performance in the current quarter, increasing the chances an agreement would not be reached this month, according to people familiar with the matter.
Hon Hai, which agreed to pay more than ￥600 billion (US$5.3 billion) for control of Sharp, has asked the Osaka-based company and its auditor for the latest financial results, said the people, who asked not to be identified because the matter is private.
Sharp has said it expects an operating profit of ￥10 billion for the fiscal year that ends this month, while analysts estimate the company would have an operating loss of about ￥24 billion.
Sharp’s board last month voted to accept the offer of Hon Hai — known as Foxconn Technology Group (富士康科技集團) outside Taiwan — over a competing bid from Innovation Network Corp of Japan (INCJ), a government-backed investment fund that planned to pay about ￥300 billion.
Just hours after the board decision, Hon Hai said it would postpone finalizing the agreement until it could work through material new information it had received from Sharp.
That information included about ￥300 billion in potential liabilities for restructurings and layoffs, people familiar with the matter said.
Hon Hai is negotiating with Sharp’s banks to mitigate the costs of those liabilities. Under certain circumstances, Hon Hai may seek to reduce the ￥100 billion it had planned to pay Mizuho Financial Group and Mitsubishi UFJ Financial Group for preferred stock they hold in Sharp, according to a different person familiar with the matter.
Hon Hai’s lawyers and bankers have sorted through the contingent liabilities and concluded earlier this month they would likely not require major changes in the board-approved deal, people familiar with the matter have said.
The Taiwanese company is taking extra precautions with the period’s financial results because of the last-minute notice about the liabilities, the people said.
“Sharp and Foxconn have not set a signing date. Both companies are working hard to reach a satisfactory agreement as soon as practically possible,” said Toyodo Uemura, a spokesman for Sharp.
Hon Hai did not immediately respond to inquiries sent to its media department.
Sharp has been losing money for years and its need for financial support set off the takeover battle between Hon Hai and INCJ last year.
The company’s cash totaled ￥208.5 billion at the end of December last year, according to data compiled by Bloomberg.
Sharp faces the expiration of ￥510 billion in credit lines and loans on March 31. The company’s banks have pushed for a bailout agreement before those loans are renewed, people familiar with the matter have said.
Sharp shares fell 1.9 percent in Tokyo trading yesterday and have climbed 22 percent this year.
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