Foxconn delay over Sharp could jeopardise sale
by Takashi Amano,
2016-03-22 07:08:51.0
TOKYO — Foxconn Technology ’s delay in finalising a takeover agreement for Sharp is raising risks the deal the Taiwanese company has pursued for months will fall apart before it has been completed.
It has been 25 days since Sharp’s board voted in favour of a bail-out proposal from Foxconn over a competing offer from Innovation Network of Japan.
Foxconn’s bid totalled more than ¥600bn ($5.4bn) including ¥489bn to acquire new shares in Sharp and ¥100bn to acquire preferred stock from the company’s main banks.
Foxconn chairman Terry Gou has since held off in signing a final agreement with Sharp as his advisers examine the company’s finances. Foxconn has sought to reduce the amount it is supposed to pay Sharp’s banks and wants more clarity on Sharp’s performance in the current quarter, people familiar with the matter have said.
Foxconn is also seeking to reduce its payment for new Sharp shares by 10% to 20% from the original ¥489bn, the Yomiuri newspaper reported. The Taiwanese company is seeking to reduce its offer for Sharp by about¥100bn, Jiji news agency reported on Monday without citing its sources.
"Usually, Foxconn cannot change the terms even if INCJ gives up the deal," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. "I’ve never heard (of) such a case before."
Foxconn, which includes Hon Hai Precision Industry, and Sharp have said they are working towards a final agreement.
"Sharp and Foxconn have not set a signing date. Both companies are working hard to reach a satisfactory agreement as soon as practically possible," Toyodo Uemura, a spokesman for Sharp, said last week.
Another Sharp spokesman, Yoshifumi Seki, declined to comment on the Yomiuri report when contacted by phone on Sunday.
"We have no new update since February 28," Louis Woo, a spokesman for Foxconn said.
Hon Hai said on Monday it was working under practical terms to reach a satisfactory agreement.
A reduction in the value of Foxconn’s offer would put it closer to the bid from INCJ. The Japanese government-backed investment fund had offered about ¥300bn for Sharp, all of which would have been put into the company through the purchase of additional shares.
Foxconn first said it would postpone finalising the Sharp agreement only hours after the firm’s board had voted for its bid on February 25. Foxconn said at the time it needed to work through material new information it had received from Sharp. That information included about ¥300bn in potential liabilities for restructurings and layoffs, people familiar with the matter said.
Foxconn’s lawyers and bankers had sorted through the contingent liabilities and concluded this month they would likely not require major changes in the board-approved deal, people familiar with the matter have said. Since then however, Foxconn has sought to get more clarity on the Osaka-based company’s financial performance in the current quarter, people familiar with the matter have said.
Sharp has forecast a ¥10bn operating profit for the year ending-March 31 and did not give net income or quarterly outlooks.
The firm will probably report an operating loss of ¥23.9bn for the financial year, according to an average of analyst estimates compiled by Bloomberg. The company is expected to post a net loss of ¥23.9bn in the fourth quarter alone, according to estimates.
Atul Goyal, an analyst at Jefferies Group, said last week that given Sharp’s financial struggles any delay over a fourth-quarter loss looks like a "negotiating ploy by Foxconn". Foxconn is seeking to reduce the price it pays for new Sharp shares from the original ¥118 each because of concerns over potential financial liabilities and future earnings, the Yomiuri reported. Foxconn is also considering cutting the size of a ¥100bn deposit it planned to pay Sharp in advance of closing the deal, the newspaper said.
Sharp is facing a potential cash squeeze because of the expiration of ¥510bn in credit lines and loans on March 31. The company’s banks Mizuho Financial Group and Mitsubishi UFJ Financial Group, have pushed for a bail-out agreement before those loans are renewed.
Foxconn is also in talks with Mizuho and Mitsubishi to reduce the interest rates on the ¥510bn in credit lines and loans, the Nikkei newspaper reported.
Bloomberg
A Foxconn factory in Wuhan, China. Picture: REUTERS/YUYA SHINO
TOKYO — Foxconn Technology ’s delay in finalising a takeover agreement for Sharp is raising risks the deal the Taiwanese company has pursued for months will fall apart before it has been completed.
It has been 25 days since Sharp’s board voted in favour of a bail-out proposal from Foxconn over a competing offer from Innovation Network of Japan.
Foxconn’s bid totalled more than ¥600bn ($5.4bn) including ¥489bn to acquire new shares in Sharp and ¥100bn to acquire preferred stock from the company’s main banks.
Foxconn chairman Terry Gou has since held off in signing a final agreement with Sharp as his advisers examine the company’s finances. Foxconn has sought to reduce the amount it is supposed to pay Sharp’s banks and wants more clarity on Sharp’s performance in the current quarter, people familiar with the matter have said.
Foxconn is also seeking to reduce its payment for new Sharp shares by 10% to 20% from the original ¥489bn, the Yomiuri newspaper reported. The Taiwanese company is seeking to reduce its offer for Sharp by about¥100bn, Jiji news agency reported on Monday without citing its sources.
"Usually, Foxconn cannot change the terms even if INCJ gives up the deal," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. "I’ve never heard (of) such a case before."
Foxconn, which includes Hon Hai Precision Industry, and Sharp have said they are working towards a final agreement.
"Sharp and Foxconn have not set a signing date. Both companies are working hard to reach a satisfactory agreement as soon as practically possible," Toyodo Uemura, a spokesman for Sharp, said last week.
Another Sharp spokesman, Yoshifumi Seki, declined to comment on the Yomiuri report when contacted by phone on Sunday.
"We have no new update since February 28," Louis Woo, a spokesman for Foxconn said.
Hon Hai said on Monday it was working under practical terms to reach a satisfactory agreement.
A reduction in the value of Foxconn’s offer would put it closer to the bid from INCJ. The Japanese government-backed investment fund had offered about ¥300bn for Sharp, all of which would have been put into the company through the purchase of additional shares.
Foxconn first said it would postpone finalising the Sharp agreement only hours after the firm’s board had voted for its bid on February 25. Foxconn said at the time it needed to work through material new information it had received from Sharp. That information included about ¥300bn in potential liabilities for restructurings and layoffs, people familiar with the matter said.
Foxconn’s lawyers and bankers had sorted through the contingent liabilities and concluded this month they would likely not require major changes in the board-approved deal, people familiar with the matter have said. Since then however, Foxconn has sought to get more clarity on the Osaka-based company’s financial performance in the current quarter, people familiar with the matter have said.
Sharp has forecast a ¥10bn operating profit for the year ending-March 31 and did not give net income or quarterly outlooks.
The firm will probably report an operating loss of ¥23.9bn for the financial year, according to an average of analyst estimates compiled by Bloomberg. The company is expected to post a net loss of ¥23.9bn in the fourth quarter alone, according to estimates.
Atul Goyal, an analyst at Jefferies Group, said last week that given Sharp’s financial struggles any delay over a fourth-quarter loss looks like a "negotiating ploy by Foxconn". Foxconn is seeking to reduce the price it pays for new Sharp shares from the original ¥118 each because of concerns over potential financial liabilities and future earnings, the Yomiuri reported. Foxconn is also considering cutting the size of a ¥100bn deposit it planned to pay Sharp in advance of closing the deal, the newspaper said.
Sharp is facing a potential cash squeeze because of the expiration of ¥510bn in credit lines and loans on March 31. The company’s banks Mizuho Financial Group and Mitsubishi UFJ Financial Group, have pushed for a bail-out agreement before those loans are renewed.
Foxconn is also in talks with Mizuho and Mitsubishi to reduce the interest rates on the ¥510bn in credit lines and loans, the Nikkei newspaper reported.
Bloomberg
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