Foxconn, Sharp said to weigh revising terms of approved deal

[TOKYO] Taiwan's Foxconn Technology Group and Sharp Corp worked through the weekend to salvage their proposed US$6 billion deal with one potential outcome being a revision to terms the Japanese's board approved just last week, according to people familiar with the matter.

Bankers and lawyers are going through a list of Sharp liabilities that could exceed 300 billion yen (S$3.66 billion), a last-minute stumbling block in Foxconn's effort to take control of the struggling Japanese company, according to the people, who asked not to be identified as the talks aren't public.

It's too early to tell whether Foxconn will lower the value of its offer for Sharp or change its bid in some other way, said the people. Any material change to the offer would require Sharp's board to vote again on the Foxconn proposal, the people said.

Foxconn chairman Terry Gou has fought for months to take over Sharp, battling a competing offer from a once-favored domestic bidder, Innovation Network Corp of Japan. Foxconn offered a package worth in excess of 600 billion yen - more than twice INCJ's bid - with most of the money going into Sharp through the purchase of additional shares.

Only hours after Sharp's board approved its offer on Thursday, Foxconn said it had received new information from Sharp and wouldn't go through with the deal until it had resolved the issues.

"It's a complicated situation. It's difficult to judge whether Foxconn is shaking up Sharp or they really need some time to check the facts," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.

Foxconn's Surprise

Sharp's stock fell 4.6 per cent to 126 yen at 9:06 am in Tokyo trading. Its shares finished 11 per cent lower in Tokyo on Friday, capping their biggest two-day decline in almost a year.

Foxconn has made it clear it was surprised by the latest information from Sharp. On Friday, Foxconn said it had received new documents on Feb 24 - the day before the Sharp board decision - that had never been submitted in previous talks. Its financial adviser JPMorgan Chase & Co and legal adviser Baker & McKenzie are discussing the matter with Sharp to clarify situation and seek solutions, it said.

Sharp has said it did nothing wrong. On Friday, the Osaka-based company said it has properly disclosed contingent liabilities and is discussing them with Foxconn.

Fraught Talks

Though the contingent liabilities, which are triggered by events such as restructuring or layoffs, could reach 300 billion yen, they could also be much lower than that, the people familiar said.

The two companies have a history of fraught negotiations. In 2012, Mr Gou announced plans to invest in Sharp and buy shares at 550 yen a piece. But the deal was never completed as the maker of Aquos TVs posted record losses and its stock tanked. Last week's deal involved buying shares at 118 yen each.

Foxconn, the primary assembler of iPhones and iPads for Apple Inc, offered a premium for Sharp in a bid to add its business of making the glass displays for Apple's devices, one of the most valuable components. Mr Gou may be reluctant to take on additional financial costs as he tries to make the high-stakes deal pay off.

Weekend Meeting

Under the plan announced by Sharp, Foxconn would get control over the company by spending 484.3 billion yen to buy additional shares at a discount and give Mr Gou and Foxconn 65.9 per cent of the Japanese company.

Foxconn would also pay 100 billion yen for preferred shares held by lenders Mizuho Financial Group and Mitsubishi UFJ Financial Group, and additional cash for other assets.

Existing shareholders would receive nothing directly under the plan and Sharp would remain a publicly traded company. Sharp would keep its brand under new ownership and pledged to maintain employment levels.

Mr Gou and Sharp chief executive officer Kozo Takahashi also met over the weekend as part of the negotiations, one person familiar with the matter said.

Sharp may be under greater pressure to make the deal work. Besides the share price decline, it also faces the expiration of credit lines with its banks at the end of March.

"Sharp wants to close the deal by the end of March but Foxconn doesn't have to hurry up because INCJ has already given up. It's a favorable situation for Foxconn," Mr Yasuda said.

BLOOMBERG