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In a surprise, Sharp accepts rescue deal but Hon Hai does not

Kyodo, Bloomberg

Japan Inc. appeared to be losing one of its crown jewels Thursday after troubled electronics giant Sharp accepted a rescue package from Hon Hai of Taiwan, turning down a bid from a government-backed consortium.

But surprisingly, Hon Hai Precision Industry Co. said within hours that it would postpone signing the deal because of “new material information” from Sharp Corp.

Foxconn, the parent of Hon Hai, put out a one-paragraph statement late Thursday after Sharp disclosed the agreement terms.

It read in its entirety: “We acknowledge receipt of a notice today from Sharp’s board choosing us as their preferred partner. After receiving new material information from Sharp yesterday morning, we have accordingly informed Sharp last night (before their board meeting on 2/25) 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 material information is a list of about ¥350 billion 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.

“It’s odd that after chasing a company for four years you wouldn’t do your due diligence and find out about off-balance sheet contingent liabilities far ahead of striking a final agreement,” said Alberto Moel, an analyst at Sanford C. Bernstein & Co.

Sharp said the board reached the decision to accept Hon Hai’s rescue plan on Thursday morning after talks the previous day ended without accord.

Hon Hai submitted a bid of around ¥660 billion, whereas Innovation Network Corporation of Japan proposed an investment of around ¥300 billion.

Hon Hai’s offer includes an investment of ¥489 billion through the purchase of new shares in Sharp. Hon Hai also plans to buy ¥100 billion in preferred shares held by Sharp’s creditor banks.

If the deal goes through, Hon Hai will own 66 percent of Sharp, which will become the biggest Japanese electronics maker ever acquired by a foreign company.

The government responded to the news by saying it hopes Sharp has grasped a lifeline. Speaking to reporters in the Diet on Thursday, industry minister Motoo Hayashi said he hopes the company will grow under Hon Hai, adding that its continued operation will ensure the employment of its workers and contribute to local economic growth.

INCJ issued a statement wishing Sharp success.

Hon Hai, which makes Apple Inc.’s iPhones, is expected to use Sharp’s advanced technology to develop next-generation organic LED displays and thereby diversify its portfolio.

It is believed to have agreed to pay ¥100 billion first as a deposit to allay doubts about the Taiwanese firm after a 2012 agreement on a capital tie-up fell apart.

At the time, Hon Hai had agreed to buy a 10 percent stake but balked after Sharp’s shares fell. In Thursday’s trading on the Tokyo Stock Exchange, Sharp’s stock closed at a nine-month low of ¥149, down 14.4 percent.

The INCJ had planned to invest ¥300 billion in Sharp and provide a ¥200 billion credit line while asking Sharp’s creditors for additional support, including wiping out the preferred shares.The public-private fund was also looking to merge Sharp’s LCD business with Japan Display Inc., a maker of small and midsize LCDs it set up to combine the LDC units of other struggling Japanese electronics makers so they could stay in Japanese hands.

On a broader scale, the fund hoped to build momentum for future realignment of the electronics industry.

Hon Hai Chairman Terry Gou said he hoped to reach a deal with Sharp by the end of the month.

Sharp, one of the biggest manufacturers of LCDs for smartphones and tablets, has struggled in the face of stiff competition from foreign rivals.

For the April-December period, Sharp posted a group net loss of ¥108.33 billion, much bigger than its ¥7.16 billion loss a year earlier.

It has taken a series of restructuring steps to improve its financial standing by seeking early retirement from its staff and selling its head office in Osaka.

  • Liars N. Fools

    The right outcome. Now Sharp — a company I like and respect — gets some invigorated infusion rather than some zombie juice from INCJ.

  • Liars N. Fools

    The right outcome. Now Sharp — a company I like and respect — gets some invigorated infusion rather than some zombie juice from INCJ.

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  • UncleCoconut

    You have to wonder about the new controlling Chinese interest after all the disclosures about how horrific life under FoxConn has been for employees in China. Once Gou announced only those SHARP employees over the age of 40 has anything to worry about it is apparent he is a ruthless investor conducting illegal and ruthless HR practices. SHARP may have “grasped a lifeline” but is it really a lifeline or has it been tossed an anchor? Now that Japan has basically refused to seriously save its own it has shown how weak its economy truly may be.

  • UncleCoconut

    You have to wonder about the new controlling Chinese interest after all the disclosures about how horrific life under FoxConn has been for employees in China. Once Gou announced only those SHARP employees over the age of 40 has anything to worry about it is apparent he is a ruthless investor conducting illegal and ruthless HR practices. SHARP may have “grasped a lifeline” but is it really a lifeline or has it been tossed an anchor? Now that Japan has basically refused to seriously save its own it has shown how weak its economy truly may be.

    • Jonathan Fields

      But why should “Japan save its own” in this case? Sharp is a terrible company that makes mediocre, overpriced products. They deserve to die. It sucks for the employees, but that’s the way business works. If you’re a dinosaur of a company that makes ludicrously outdated stuff, you’re going to go extinct.

      • Susukino

        “Mediocre overpriced products”. That sounds a lot like Apple-products, wonder why they havent died yet?

      • Jonathan Fields

        Haha, OK. Compare an Aquos phone to an iPhone or a MacBook Air to any equivalently priced Sharp laptop and cone back. You can argue that Apple stuff is expensive, but the quality (especially the build) is worlds better than any Japanese brand. Face it, Japanese electronics have been behind for a while. And the electronics they sell domestically are even worse because they know people will blindly support them. Or would, rather. They’re clearly not anymore.

      • Susukino

        Now is it? I have a Macbook Air, and I can honestly say that I have never had a laptop who crashes so often. It is less than a year old. I use mainly multi-platform programs though, like Firefox, Chrome, Office etc, and not so much Apple’s own, so that might be a reason, but still. It’s a crappy machine for what it is being used for.

        Have you ever tried a Vaio laptop? My 2nd laptop is a Vaio, and its close to 3 years old already, but still way faster and more stable than the Macbook Air. The only thing is that it is a bit more bulky, so I can’t carry it with me as easily (with that being said Vaio has similar sized models to Macbook Air as well which I wouldn’t hesitate buying).

        Have you ever tried a Sharp Aquos phone? or for that matter an Xperia phone from Sony? Their Z-models are equal or better than similar models from Iphone every year, every time. They are built to last longer as well, cause how many cracked or broken Iphones havent you seen around there? ( Z3 had a problem with the glass breaking easily, but nothing compared to how fragile an Iphone is). And did I mention that it is also waterproof?

        Surely you are an Apple-fanboy, so I will let you live in your illusion, but please try to look at it a bit more objectively=)

        And one last thing, you are awfully generalizing now. Are the Japanese camera business “behind”? Behind who? Samsung, who just pulled the plug on their entire camera division? Kodak, who were bankrupt several years ago? Leica, who sell 1/70th as many cameras of what Panasonic sell ( which is not even one of the bigger players)? Hasselblad? Please tell me.

        And TVs? Is that why in every single test out there, Panasonic and Sony score highest almost every single time? Sharp and Toshiba too for that matter, but they dont sell that much internationally longer, because cheaper, less durable products from China and South Korea have taken up the market. But don’t tell me Sony and Panasonic are in any way behind any other TV-makers today ( in volume maybe, cause Samsung and LG products are cheaper…)

      • Jonathan Fields

        You were the one who brought up the Apple comparison, not me. And I don’t believe you about the MacBook Air. Especially if it’s less than a year old. They’re rock solid. It’s the machine I always choose for relatives who aren’t so good with computers. They run Windows like a champ as well. I personally have a custom-built PC and an iPhone.

      • Susukino

        Why would I lie? I can send you a picture of it if you want dated today? Firefox is crashing AT LEAST once a day, office doesn’t anywhere near as smooth as it does on my Windows PC etc.. ( unfortunately I have to use it since it is my job-pc).

        Based on your comments, I would like to presume that your friends and relatives have never owned a high-end PC, and what you are doing seem to be recommending them something that cost 3x as much as their former PC. You cant compare a Macbook to low-end PCs costing around 400-800 Euros. In other words half or in some cases even 1/3rd the price of a Macbook.

        I certainly hope that a Macbook is more solid than a 500 Euros PC, but compare it to a similar priced high-end PC from Dell, Vaio, Fujitsu etc, and the story is completely different.

        My mom’s Iphone 5 broke last summer/autumn ( no shock there…), and I recommended her to buy a Sony Xperia Z3 Compact instead for only HALF the price of Iphone 6s at that time. And guess what? She’s never been happier with a phone than she is with that one.

      • Jonathan Fields

        A MacBook Air doesn’t cost much. Only 900 bucks. I’d suggest, if you really do own a MacBook Air, that you install Windows on it. If you must use Firefox and Office for work, that’s the better system for it. The original discussion was about Japanese electronics. You’re the one who made it an Apple vs. PC comparison.

        The point is, Japanese products (and especially laptops) are slipping. They thought they could get away with “good enough” as long as there was a Japanese name behind the product, but they’re finding out that that’s not the case. Sharp has amazing screen technology, but the retail products they make just can’t compete with their Korean, European, American, and Chinese rivals. If they step their game up, I hope they succeed. But as long as they try to sell plastic laptops with Celeron processors and 3GB of ram to old people for ¥120,000 in the year 2016, they deserve nothing but scorn.

      • Jonathan Fields

        Fujitsu makes horrible laptops, by the way. when I read that in your post, I snorted out loud.

      • DBoy00

        Umm…. No. Just No.
        All companies have some strong products and some weak products. Your few empirical data points are lacking basis and strongly biased. Yes, you like Japanese tech, I do too.

        A few VAIO products have been stable, but they are terribly bloated with ridiculous Sony software that straight up doesn’t work. As you know, they also didn’t make profit off that division. VAIO has been sold. I am on a 4.5 year old VAIO now, I had to remove all the Sony soft to reduce lag, and finally I had to reinstall, buy an SSD and add a stick of RAM to keep it current. The laptops are OK, but they are not the miracle you say. Windows 7 is stable, but VAIO is not more stable that OSX….. what are you saying?

        iPhones work well for their relative generations.

        Yes some android phones can be comparative, but the overall total design is always subpar. In the age of iPhone 5, Samsung Galaxy 3 was comparable. It was the first hardy rival. But Japanese phones? Xperia is a last ditch effort. I agree, they are nice phones. But they all had a number of manufacturing issues, as well as “not enough stock for the world market.” Xperia only enjoyed partial releases to the world market. And what about Aquos? How many Sharp phones or Fujitsu or Toshiba phones were sold in other countries?

        This is not a subjective opinion,
        Just look at the range of satisfied Japanese people with their iPhones vs the haters that were early adopters of the Aquos or Fujitsu phones. “Battery lasted for half a day in idle.” We have a lot more satisfied Japanese iPhone owners than Western Xperia Lovers.

        As for Macbook Air. I don’t own a mac because IT requires mostly Windows and Linux based usage but I know they are well designed. Even so, this isn’t a Windows vs Mac. Macbooks are used by many non-tech educated people with great success. The Japanese designed objects have some really nice design points, but they don’t outweigh the negative attributes.
        IE bloatware of VAIO, non-attractive design/bulkiness and small screen of Panasonic work laptops.

        Furthermore all those sectors were operating in the red for many years. That’s a lot of R & D money for products that are superior only on a few points.

      • Susukino

        I know Vaio is not a part of Sony anymore, which is also why i wrote VAIO and not SONY VAIO. Still, I have nothing but positive things to say about their high-end laptops.

        And to base the quality of a product on purely numbers of sales is a bit demeaning isnt it? You know just as well as I do that consumer brands are all about trends and marketing, and not so much about quality.

        This goes for both electronic devices , cars ( Citroën C4 and Peugeout 307 was built on the exact same platform – with the former being by most people dabbed as the “best looking” one among those 2 – and yet there were sold 80-90 Peugeot 307’s to every C4 in a certain Scandinavian market). Why is that? Certainly not quality, cause the cars are pretty much the same. Certainly nothing to do with past reputation, as ALL french cars were considered sh*t in most Scandinavian countries anyway. So then what it is? Peugeout were better at marketing their car, making 307 more trendy than Citroën did with C4.

        Back to mobile phones, it’s true that Sharp, Toshiba and Fujitsu never sold any phones outside of the Japanese market, but why is that? They didn’t even TRY. There was absolutely no attemps at getting into the European market, so to use the argument that Aquos or Fujitsu phones weren’t sold in other countries isnt right when the customers of these other countries werent even given a chance.

        And Japanese users are just like any other users: They are led by trends and marketing. Iphone is considered the hip product by many in Japan, (perhaps cause its western?), and if you go to any Yodobashi or Bic Camera you will find racks of racks of Iphone accessories, while there will only be one rack dedicated to Xperia, and another one dedicated to everything else Android.

        What does this tell me? That Iphone is trendy. Not that Iphone is better.

        Yuu write:
        “Yes some android phones can be comparative, but the overall total design is always subpar”.

        This is a highly individual statement. Yes, Iphones are trendy, and therefore people find their design nice. ( Which is strange, as its a square block just like any other phone).

        Compare ANY Iphone to Galaxy Edge, LG G4, Xperia Z5 Premium or even any of the Nokia Lumia flagships, and you will certainly get a discussion about what design is best. Personally I prefer the simple “squared” design of Xperia-phones, and the chrome-back on the Z5 Premium does indeed gives it a “premium” touch. I get lots of comments about its design, especially from friends that are Iphone users, and they are mostly positive.

        I also like Samsung’s Edge-phones. Never a great fan of the normal Galaxy’s, but Edge clearly has a very nice design.

        About Bloatware:
        My Macbook has Safari, Numbers, Pages, Itunes, Quicktime and a dozen of other Apple-products that are 100% bloatware for me. They are programs I never use, so how can Vaio be any worse than Apple ( or any other laptop-maker)in that case? Bloatware as well is very individual, and as mentioned for me, all these apple-apps are considered bloatware.

        Certainly Japanese electronic brands are facing some severe difficluties at the moment, but many of them focus mainly on the domestic Japanese market only. Panasonic and Sony have been the biggest brands overseas, but even Panasonic have more and more product only aimed at the domestic market now.

        And lets not forget that the domestic Japanese market is still one of the biggest markets in the world, so even if we stop to see Xperia-phones or Panasonic shavers in USA or Europe, they will most likely still be produced for the Japanese market, atleast for the foreseeable future.

        But with Sharp selling their majority to Taiwan, Toshiba closing their TV-division in USA etc, its not good of course.

  • UncleCoconut

    You have to wonder about the new controlling Chinese interest after all the disclosures about how horrific life under FoxConn has been for employees in China. Once Gou announced only those SHARP employees over the age of 40 has anything to worry about it is apparent he is a ruthless investor conducting illegal and ruthless HR practices. SHARP may have “grasped a lifeline” but is it really a lifeline or has it been tossed an anchor? Now that Japan has basically refused to seriously save its own it has shown how weak its economy truly may be.

  • UncleCoconut

    You have to wonder about the new controlling Chinese interest after all the disclosures about how horrific life under FoxConn has been for employees in China. Once Gou announced only those SHARP employees over the age of 40 has anything to worry about it is apparent he is a ruthless investor conducting illegal and ruthless HR practices. SHARP may have “grasped a lifeline” but is it really a lifeline or has it been tossed an anchor? Now that Japan has basically refused to seriously save its own it has shown how weak its economy truly may be.

  • Steve Jackman

    “It’s odd that after chasing a company for four years you wouldn’t do your due diligence and find out about off-balance sheet contingent liabilities far ahead of striking a final agreement,” said Alberto Moel, an analyst at Sanford C. Bernstein & Co.” Not, really. Japanese companies are so secretive and opaque that outsiders can never know what’s going on inside the black box.

  • basejumpbr

    Japanese Companies Big Mistake was sent all Infra Estructure and Tecnology to China..Now after learn…Chineses make your own brand more cheap but japanese brands still expensive…While Chineses factories are new…japaneses factories are scrapped..Japaneses companies stop make investments in your own factories in Japan…Japanese population are shrinking and is not to far Japan become a China territory cause the facilities Chineses have to come live and work in Japan…Stay tune…