Sharp Corp. (6753) will sell 10.4 billion yen ($111 million) of stock to Samsung Electronics Co. (005930) as the Japanese display maker tries to rebound from a record loss amid slowing demand for TVs and Apple Inc. iPhones.
Samsung will pay 290 yen a share for about a 3 percent stake, according to a filing with Japan’s Finance Ministry. That’s 15 percent lower than today’s closing price. The Korean company, the world’s largest maker of TVs and smartphones, said the investment will secure a supply of liquid-crystal displays from Sharp, and it won’t be involved in management.
Today’s agreement follows Sharp’s sale of shares to Qualcomm Inc. (QCOM:US) as the maker of Aquos TVs attempts to revive profitability by cutting jobs and selling assets. Sharp, which has failed to conclude a deal with Foxconn Technology Group during almost a year of talks, is trying to raise funds after forecasting a record full-year loss of 450 billion yen.
“Sharp is in a very precarious situation,” said Sean Kim, a Seoul-based analyst with Standard Chartered Bank. “This move will help Samsung have the upper hand in controlling the overall panel supply. Having that strategic alliance with Sharp by only spending that much money seems to be a good deal for Samsung.”
The share sale will close March 28, according to today’s filing. Sharp will use 6.9 billion yen of the proceeds to purchase LCD technologies and 3.23 billion yen for capital expenditures related to mobile devices, it said.
“The investment is set to fortify the partnership between Samsung and Sharp,” Suwon, South Korea-based Samsung said in a statement. It will also “lay a firm foundation for Samsung to secure a steady supply of LCD panels from diversified sources.”
Sharp, Japan’s biggest maker of LCDs, surged 14 percent to 341 yen at the close of Tokyo trading.
“Ten billion yen is too small to meet Sharp’s needs but it does send a positive signal to the market,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo.
The company has delayed presenting a turnaround plan to lenders as it tries to revive orders from Apple, two people familiar with the situation said. The iPhone maker faces slowing growth in demand for its handsets.
Sharp lost 55 percent of its market value last year and warned in November about its ability to survive after hemorrhaging 103 billion yen in cash from operations in the fiscal first half. In December, Sharp turned to Qualcomm, the biggest maker of mobile-phone chips, for as much as 9.9 billion yen in new capital after failing to secure a deal with Foxconn.
Sharp planned to raise 132.5 billion yen from Foxconn and founder Terry Gou, the companies said last year. The talks stalled in part because the companies can’t agree on a price for the stock, two people familiar with the matter said last month.
Foxconn will continue talks with Sharp, the Taiwanese company said today in an e-mailed statement.
Intel Corp. (INTC:US) and Sharp held talks on the possibility of an investment by the Santa Clara, California-based chipmaker without an agreement being reached, said a person familiar with the situation. Nick Jacobs, a Singapore-based spokesman for Intel, declined to comment, citing the company’s policy not to comment on speculation.
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.
In November, Sharp said there was “material doubt” about its ability to survive as a business amid a slump in demand for its panels.
Cupertino, California-based Apple is Sharp’s largest customer, accounting for 3.4 percent of sales last year, according to estimates by Bloomberg. The Japanese company supplies screens for the iPad and iPhone 5, devices facing increasing competition from Samsung’s Galaxy lineup and other products featuring Google Inc.’s Android operating system.
Operations at Sharp’s plant in Kameyama dedicated to making iPhone screens have been suspended, one of the people familiar said. Apple declined to comment.
“Sharp was the first supplier that was cut out when iPhone demand started to slow,” said Amir Anvarzadeh, Singapore-based manager for Asia equity sales at BGC Partners Inc. (BGCP:US) “Chances for Sharp to revive as a standalone company are zero unless becoming part of a big group like Samsung or Foxconn.”
Lenders want to see more details on how Sharp will increase profits before committing funds, and they expected to see the plan last month, one of the persons said.
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 in loans from June 30 on the condition the TV maker posts an operating profit in the six months to March 31 and forecasts net profit next fiscal year, a person with direct knowledge of the matter said in January.
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