The board of Japan’s Sharp Corp began a two-day meeting yesterday to decide if it should accept a $5.9bn takeover bid from Taiwan’s Foxconn over an offer from a state-backed fund.
A Sharp spokesman confirmed the offers would be discussed today, although he declined to say what its board members had discussed so far. The company is due to make a decision on Foxconn’s offer by the end of the month.
A deal with Foxconn, formally known as Hon Hai Precision Industry Co, would pave the way for the largest acquisition by a foreign company in Japan’s insular technology sector, where deals have mostly been struck between domestic rivals and struggling firms rescued by banks or state funds.
Foxconn is widely seen as the frontrunner in the race to rescue the loss-making electronics maker, with sources saying its offer is more than double the ¥300bn ($2.7bn) investment proposed by the state-backed Innovation Network Corp of Japan (INCJ).
After Sharp said this month it would devote more resources to studying a deal with Foxconn, the Taiwanese firm’s CEO Terry Gou flew into Osaka to talk with Sharp executives and later announced that the two firms had agreed on most points of a deal.
At least four of Sharp’s 13 board members favour the Foxconn offer, two of whom represent Sharp’s two main lenders, according to sources familiar with recent discussions. The lenders are wary of the INCJ plan, which calls for them to cancel the preferred shares they own, they said.
But it was unclear how the other board members including Chief Executive Kozo Takahashi would vote, they said. Sources have declined to be identified as they were not authorised to speak on the matter.
INCJ at one time had been considered the more favoured suitor as it was seen as a more reliable investor with the backing of government. The fund has said it wants to merge Sharp’s display business with Japan Display Inc, in which it is the top shareholder.
Government officials initially backed INCJ’s plan, fearing a loss of Japan’s technological expertise to a foreign company. Sources have said, however, that policymakers warmed to Hon Hai’s offer as a step towards bolstering foreign direct investment in Japan.
Yet, some sources have cited lingering doubts within Sharp over Foxconn’s commitment, after a breakdown in a 2012 agreement between the two companies to form capital ties. In a gesture to reassure Sharp executives, Foxconn has offered to pay ¥100bn as a cancellation fee if it does not go through with the deal, one source said. Board members will also discuss INCJ’s offer before moving to a vote today, the sources said.
A takeover by Foxconn, which assembles various electronics products such as smartphones and televisions for the likes of Apple and Sony, would vastly expand sales channels for Sharp’s liquid crystal display (LCD) panels.
Teruo Asamoto, professor at Kyushu Sangyo University, said Foxconn’s ample resources would also enable much-needed investment in next-generation display technology, including for organic light-emitting diode (OLED) screens which Apple is believed to be adopting in its iPhone around 2018. The two companies “would make a good match as Sharp can take advantage of Hon Hai’s expertise in production efficiency to commercialize their gadgets,” he said.