Foxconn casts doubt on Sharp deal

Sharp Corp Chief Executive Kozo Takahashi is surrounded by the media as he leaves the company's headquarters in Tokyo, on Thursday, following reports of Sharp Corp agreeing to a takeover by Foxconn Technology Group. YUYA SHINO/REUTERS

Electronics company refuses to finalize agreement due to 'new material'

Just hours after winning a board vote to take control of Japanese electronics maker Sharp Corp, Foxconn Technology Group said in a surprise reversal that it would postpone signing a definitive agreement because of "new material information."

Under an agreement announced by Sharp, Foxconn would control 65.9 percent of Sharp after buying new shares at 118 yen ($1.05) apiece, or 32 percent less than Wednesday's closing price. The company said it won't finalize a deal until the situation with the new information is resolved.

Foxconn's response cast uncertainty over a deal that Sharp had outlined in detail just hours before, and was seen as a sign of Japan's growing openness to foreign acquisitions. The board of the century-old consumer electronics maker had to choose between Innovation Network Corp of Japan's plan to restructure by spinning off businesses, or staying whole under a foreign parent. Foxconn, the main assembler of Apple Inc's iPhones, is aiming to take over one of the largest suppliers of screens for phones and tablets.

"Sharp shareholders face a large dilution, but at least the stock isn't worth zero," said Atul Goyal, an analyst at Jefferies Group LLC.

"It isn't a victory for Sharp shareholders. And I'm not at all sure if this is a victory for Foxconn and its shareholders may see that money simply evaporate."

Sharp shares slumped 14 percent after details of the deal were announced, with the stock finishing at a nine-month low of 149 yen. The stock fell 12 percent in German trading. It would raise 484.3 billion yen from the sale of shares to the company, according to a filing.

Foxconn would also put down a 100 billion yen deposit that Sharp can keep if the sale, which is contingent on shareholder approval, does not go through.

Foxconn, the parent of Hon Hai Precision Industry Co, put out a one-paragraph statement late on Thursday raising questions about the final agreement after it was selected as preferred partner.

"After receiving new material information from Sharp yesterday morning, we have accordingly informed Sharp last night (before their board meeting on Thursday) that we will have to postpone any signing of a definitive agreement until we have arrived at a satisfactory understanding and resolution of the situation."

The new information is a list of about 350 billion yen of contingent liabilities at Sharp, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Sharp had no immediate comment on Foxconn's statement.

Chairman Terry Gou is seeking to broaden Foxconn's remit, transforming it into a company that also makes key electronics components and devices.

Foxconn had proposed a total rescue plan worth about 660 billion yen, a person familiar with the situation said. Hon Hai's shares closed 2.6 percent higher on Thursday, before Sharp outlined details of its deal.

As part of the deal announced by Sharp, Foxconn would buy 100 billion yen of preferred shares owned by Mizuho Financial Group and Mitsubishi UFJ Financial Group, or half of each bank's holdings. Mizuho ended 2.7 percent higher while MUFJ closed up 1.8 percent.

Sharp would remain an independent company and keep the brand under new ownership, it said in a statement. The Japanese company, which pledged to maintain employment levels, would work with Foxconn on next-generation high-end flexible displays for smartphones and other devices.