Sharp Corp yesterday agreed to be bought by Foxconn in what would be the biggest takeover of a Japanese tech firm by a foreign company, but the Taiwanese company said it needed to clarify terms and was not ready to sign.
The loss-making display maker said it would issue around $4.4bn worth of new shares to give Foxconn, known formally as Hon Hai Precision Industry Co, a two-thirds stake. Foxconn’s investment is set to total more than ¥650bn ($5.8bn), a source familiar with the matter said, declining to be identified as he was not authorised to speak on the matter.
If the deal is signed, it would boost Foxconn’s position as Apple Inc’s main contract manufacturer and enable Sharp to start mass-producing organic light-emitting diode (OLED) screens by 2018, around the time Apple is expected to adopt the next-generation displays for its iPhones.
Sharp issued a 31-page release detailing the proposed agreement but Foxconn later said in a statement that Sharp on Wednesday morning had “couriered over a new key document” that needed clarification and that it had told the Japanese firm of this.
A Sharp spokesman had no immediate comment after Foxconn’s statement.
After the news of proposed deal but before Foxconn’s statement, Sharp’s stock tumbled to end 14% lower as the share dilution looked larger than expected, with traders noting that the deal included the issuance of a class of shares that would be convertible next year.
Sharp’s decision comes after five years of courting by founder and billionaire Terry Gou, who sees ownership of Sharp as a way to better compete with Asian rivals such as Samsung Electronics Co.
“Sharp has the technology to build out the components to compete with Samsung as an Apple supplier, which means that with Sharp under its umbrella Foxconn can help Apple wean itself off Samsung,” said Gavin Parry, managing director of Parry International Trading, a brokerage in Hong Kong.
“This gives Foxconn better pricing power with Apple,” he added.
Sharp’s board voted unanimously to accept the Foxconn offer over a rescue by a state-backed investment fund, chief executive Kozo Takahashi told reporters.
Foxconn shares ended 2.6% higher.
Sharp said it aimed to become a global supplier of OLED screens, which are thinner, lighter and more flexible than current displays. South Korea’s Samsung Display and LG Display are also investing heavily in the new technology.  The century-old Japanese firm was once a highly profitable manufacturer of premium TVs and a favoured screen supplier to Apple. But it has struggled in recent years as massive investments in advanced liquid crystal display plants failed to pay off amid price competition with Asian rivals, and two bank bailouts since 2012 did little to help turn its business around.
In agreeing to the deal, Sharp executives have decided to put behind them ill-feelings over the breakdown of a 2012 agreement between the two companies to form capital ties.  Both government and Sharp officials initially backed a rescue plan by state-backed Innovation Network Corp of Japan (INCJ), fearing a loss of the company’s technological expertise to a foreign company.
The fund had planned to merge Sharp’s screen business with Japan Display, in which the fund owns a majority stake.  The plan looked set to be another in a long series of deals between domestic rivals, propped up with the help of banks or state funds. But policymakers warmed to Foxconn’s offer as a step towards bolstering foreign direct investment in Japan.
Foxconn’s offer is also seen as beneficial for Sharp’s creditor banks, anxious to limit their losses after helping bail out Sharp twice already. The lenders are Mitsubishi UFJ Financial Group’s core unit Bank of Tokyo-Mitsubishi UFJ, and Mizuho Financial Group’s Mizuho Bank.