Sharp meets Hon Hai after last-minute delay in bailout deal

Kyodo, Bloomberg, Reuters

Sharp Corp. sent officials for talks with Hon Hai Precision Industry Co. on Friday, sources said, a day after the Taiwanese firm said it would delay signing a deal to acquire Sharp.

Sharp board members decided to accept an offer from Hon Hai, which trades as Foxconn, in a ¥660 billion investment. But hours later, Hon Hai stalled, citing “new material information” in a document sent from Sharp.

Hon Hai learned this week about liabilities at Sharp that could exceed ¥300 billion under certain circumstances, according to people familiar with the matter. Triggered by events such as restructuring or layoffs, they could also be much lower, the people said.

On Friday, Sharp President Kozo Takahashi visited Shenzhen in southern China to meet with Hon Hai Chairman Terry Gou, according to a person familiar with the matter.

Sharp said in a statement it is currently discussing an agreement with Hon Hai “by confirming our managerial status including Sharp’s contingent risks.”

“Sharp’s contingent liabilities have already been appropriately disclosed in our securities report and quarterly report based on accounting rules,” it said, adding that no further disclosure is necessary.

Billionaire Terry Gou has been chasing Sharp since at least 2012 and just when it looked like Hon Hai had secured its prize, he hit the pause button.

While Gou out-maneuvered and outbid Innovation Network Corp. of Japan to get the backing of Sharp’s board for his bailout, the potential costs of restructuring a company that has endured chronic losses prompted second thoughts.

“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 analyst Alberto Moel of Sanford C. Bernstein & Co.

Under a plan announced by Sharp, Hon Hai would get control over the company by spending ¥484.3 billion to buy additional shares at a discount and give Gou’s empire 65.9 percent of the Japanese company.

Gou is seeking to broaden Hon Hai’s remit, transforming it into a company that also makes key electronics components and devices.

He announced plans to invest in Sharp in 2012 and buy shares at ¥550 a piece, a deal that was never consummated as the maker of Aquos TVs posted record losses and its stock tanked. This week’s deal involves buying shares at ¥118.