Print | Share | Reprint

Hon Hai renegotiates Sharp deal

by Andrew Bulkeley | Published August 7, 2012 at 9:56 AM

The plunging share price and dimming fortunes of Japan's Sharp Corp. are pushing rival Hon Hai Precision Industry Co. Ltd. to renegotiate the terms of an $804 million investment agreed to before investors understood the depths of Sharp's troubles.

Sharp on Aug. 3 said it had agreed to release Hon Hai, best known as the owner of Apple Inc. supplier Foxconn Technology Group, from the terms of a March agreement in which Hon Hai would buy 9.9% of Sharp at ¥550 ($7) per share.

Sharp's woes have steadily grown since the deal was announced, culminating Friday when it said it will likely post a ¥376.1 billion loss in the year ending March 31 -- more than 10 times its previous forecast. It expects sales to slide 7.4% in the current fiscal year as demand for its LCD TVs remains weak, especially in China and Japan.

The problems have pushed its shares down to as low as ¥176 on Friday, reportedly its lowest point in 37 years. The stock closed 1.1% higher Tuesday at ¥183, still well below Hon Hai's agreement.

Hon Hai and its units have already written off NT$6.4 billion ($213.8 million) related to the investment and analysts now expect the company to either take a bigger stake in Sharp or spend less for the minority holding. Still, they are hoping for a deal to ensure both Hon Hai's Foxconn and Sharp can continue to supply screens to Apple.

Foxconn makes Apple's iPhones and iPads and was pushed to improve working conditions and raise wages at its Chinese factories after a barrage of negative publicity and investigative reports this spring. Sharp supplies displays for the smartphones and tablet computers.

"I still want to invest," Hon Hai chairman Terry Gou told reporters Sunday. "At the most appropriate time and most appropriate price we'll then buy."

The investor said he hopes to complete the deal by March.

Hon Hai shares gained 7% amid reports of the talks, closing at NT$87.30.

Sharp is currently turning to its main lenders Mizuho Financial Group and Mitsubishi UFJ Financial Group Inc. to fund a restructuring. The banks may force Sharp to sell non-display businesses or other assets to raise extra cash. The company has ¥40 billion in equities in other companies such as Pioneer Corp., Olympus Corp. and Toshiba Corp. it could jettison, according to Reuters.

Sharp has already sold a 46.5% stake in its LCD display unit to Hon Hai founder Gou, who paid ¥66 billion for the investment as part of the original deal with Sharp. The billionaire has since said he hopes to expand the venture to include the manufacture of complete TVs, rather than just displays, and list the company.

Share:

Telecom, Media & Technology

Hon Hai renegotiates Sharp deal

Free preview

Meet the journalists

Andrew Bulkeley

Correspondent: Berlin

Movers & Shakers

Video

PE sponsors choose IPOs as market rises

Sectors