Bloomberg News

Sharp-Foxconn Stake Talks Said to End March 26 Without Deal

February 24, 2013

Sharp-Foxconn Stake Talks Said to End March 26 Without Deal

Customers look at Sharp Corp. Aquos televisions displayed at an electronics store in Tokyo. The Japanese TV maker said last year there was “material doubt” about its ability to survive after it hemorrhaged 103 billion yen in cash from operations in the six months ended September. Photographer: Kiyoshi Ota/Bloomberg

Sharp Corp. (6753)’s talks with Taiwan’s Foxconn Technology Group over an investment in the Japanese electronics maker will probably end March 26 without an agreement, two people familiar with the discussions said.

Negotiations haven’t led to a deal partly because the companies can’t agree on a price after Sharp’s shares declined, said one of the people, both of whom asked not to be named because the talks are private. The maker of Aquos televisions fell the most in two months today, the biggest decline among companies in the Tokyo Stock Exchange’s first section.

Stumbling blocks in the talks also include management control and company strategy, one person said. Japan’s largest maker of liquid-crystal displays said in November talks might continue beyond March. Sharp is trying to raise funds as it forecasts a record full-year loss of 450 billion yen ($4.8 billion) amid slow demand for its panels and TVs.

Foxconn, founded by billionaire Terry Gou, initially agreed in March to buy a 9.9 percent stake in Osaka-based Sharp for 550 yen a share. The deal foundered as Sharp’s shares plunged for seven straight months, reaching as low as 143 yen, and as Foxconn said it would renegotiate the price.

No Decisions

The Mainichi newspaper reported Feb. 23 Sharp may suspend the share-sale talks, without saying where it got the information. The Sankei newspaper said the electronics maker is considering measures including a public share sale to raise capital by about 200 billion yen, without citing anyone.

Miyuki Nakayama, a Tokyo-based Sharp spokeswoman, said the company wasn’t the source of either report and that no decisions have been made on ending negotiations with Foxconn or on selling shares.

“Discussions are ongoing,” Louis Woo, a spokesman for Taipei-based Foxconn, said by phone on Feb. 23. “We are not bound by any timetable.”

Hon Hai’s Chief Financial Officer Huang Chiu-lian said in June that the company’s plans to take a stake in Sharp faced resistance from management and board members of the Japanese company. Sharp’s managers “fear the company becoming a part of Hon Hai,” Huang said at the time.

Ongoing Talks

Discussions over other types of cooperation and the possible sales of Sharp factories to the Taiwanese company may continue, the two people familiar with the talks said. Sharp sold a stake in an LCD factory in Sakai, central Japan, to Foxconn’s Gou in July.

Sharp is in talks with other companies on possible share sales and aims to include a deal in its medium-term business plan, which may be disclosed as early as next month, one of the people said.

The TV-maker agreed in December to sell as much as 9.9 billion yen of new shares to San Diego-based Qualcomm Inc. (QCOM:US) The U.S. chipmaker has so far bought 4.9 billion yen as part of the two-step transaction.

Sharp dropped 6 percent to 291 yen, headed for the biggest decline since Dec. 25, as of 10:35 a.m. in Tokyo. The benchmark Nikkei 225 Stock Average gained 1.7 percent.

Job Cuts

Sharp shares plunged 55 percent to 303 yen last year amid widening loss forecasts. The company has reduced its workforce, sold assets and mortgaged its headquarters to refinance debt after posting a record 376 billion-yen net loss in the fiscal year ended March 31. The shares have gained 2.3 percent this year.

The Japanese TV maker said last year there was “material doubt” about its ability to survive after it hemorrhaged 103 billion yen in cash from operations in the six months ended September. Sharp has 200 billion yen of convertible bonds maturing this year, according to data compiled by Bloomberg. Its debt was cut to junk by Fitch Rating and Standard & Poor’s last year.

Debt Collateral

Sharp’s main banks, Mizuho Corporate Bank Ltd. and Bank of Tokyo-Mitsubishi UFJ Ltd., are set to extend the due date of 360 billion yen of loans from June 30 on the condition the TV maker posts an operating profit in the six months to March 31 and forecasts a net profit next fiscal year, a person with direct knowledge of the matter said last month.

Sharp pledged as collateral a total of 741 billion yen in assets as of Sept. 30, up from 19 billion yen six months earlier, according to its quarterly report. Assets under collateral included 259 billion yen of properties, 201 billion yen of inventory and 44 billion yen of machine equipment, according to the report.

The company said Feb. 1 it narrowed its third-quarter net loss, helped by job cuts, asset sales and a weaker yen. The loss was 36.7 billion yen in the three months ended Dec. 31, compared with a loss of 174 billion yen a year earlier, it said. Sharp posted an operating profit, or sales minus the cost of goods sold and administrative expenses, of 2.6 billion yen for the period.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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