MADISON, Wis. – The Nikkei, Japan’s economic journal, reported Friday (Aug. 17) that Foxconn owner Hon Hai Precision Industry Co. is now asking to double its planned stake in Sharp Corp. to about 20 percent from the originally agreed 9.9 percent.
Neither Hon Hai nor Sharp is commenting at this point.
Announced this past March, the deal between the world’s largest contract manufacturer and Japan’s leading LCD manufacturer has turned out badly for Sharp.
If Hon Hai has its way to increase its stake in Sharp over 10 percent, the Taiwan giant will get the right to ask a court to dissolve Sharp, thus allowing Hon Hai to increase its voice in controlling the ultimate destiny of one of the oldest Japanese companies. Hon Hai’s new proposal, if true, is the worst case scenario for Sharp, who has been resisting at all cost to changing the terms of the original agreement.
Financially stricken Sharp may be left with little choice at this point as Japanese banks are breathing down their neck to close the capital infusion deal with Hon Hai.
The Taiwanese manufacturer is also asking Sharp to lower the price of the shares it will buy from the initially agreed 550 yen a share, because Sharp's stock price has sharply dropped below that level recently.
The Nikkei reported that Hon Hai apparently has requested cutting the price to about 200 yen per share, close to the current market price.
The Japanese newspaper also reported that Hon Hai may also ask to send in board members, in line with its request for a greater stake.
Under the basic agreement the companies reached on March 27, Hon Hai will take a leading 9.9% stake in Sharp by March 2013, buying the Japanese firm's stock at 550 yen per share. Under those terms, the Taiwanese company would spend approximately 67 billion yen on the deal.
so, going further in this scenario i can not think how closing down Sharp will profit Apple or foxconn, both are not players in LCD business. Wouldn't it be better to acquire it for a supply of patents and probable for a dedicated LCD manufacturer.
If selling a large stake of itself to Hon Hai (at a discount) is not in the best interests of Sharp, why would it do it? It seems to me that Hon Hai cannot compel Sharp to sell a larger stake of itself for a discounted rate.
What Sharp's best interests are will depend upon whom you ask.
Sharp itself will want to remain independent, but it's not clear it *can*. It may require this deal to continue as a going concern. It needs a healthy injection of capital, and where will it get it? The banks are unlikely to throw good money after bad, and Hon Hai is the only outside investor that has expressed interest.
One question is whether the Japanese banks will call the loans and force it into bankruptcy.
Another is the attitude of the Japanese government, and whether it will feel compelled to intervene on Sharp's behalf as a matter of national pride.
My bet is that Sharp will grit its teeth and take the deal because the alternative is going belly up.
This is absolutely no surprise, and about what I expected might happen.
Hon Hai still wants to do the deal, but at far more favorable terms. It shouldn't be hard to come up with similar examples that have happened elsewhere in the electronics industry when someone's fundamentals changed and their partner wanted to renegotiate the deal.
Whether Hon Hai will in fact ask the court to dissolve Sharp is an interesting question. That gets into political areas, as a Taiwanese company will be asking a Japanese court to do it, and I could see the Japanese government being unenthusiastic about the idea.
But a 20% stake and seats on Sharp's board *are* reasonable assumptions, and Hon Hai would have a greater say on Sharp's future direction.
The more interesting question, if Hon Hai succeeds in this, is whether thy might gradually increase the ownership and have Sharp become a wholly owned subsidiary.