What the two companies must do now
To fuel its uncertainty, last Thursday (Aug. 9th), Taiwan's Ministry of
Economic Affairs, which reviews all outgoing investments, announced that
it returned Hon Hai’s application for a regulatory review of its
planned purchase of a 10% stake in Sharp on the grounds that the
expected investment return on the deal "isn't reasonable enough."
Chang, deputy executive secretary of Taiwan's Investment Commission,
reportedly said the Ministry’s move doesn't mean the deal has been
rejected. The Investment Commission has asked Hon Hai to submit more
information regarding the expected investment returns.
currently couldn’t be in a much worse position to re-negotiate the deal
with Hon Hai.
On Aug. 2nd, Sharp announced that the company is
expecting a net loss of 250 billion yen in the current fiscal year,
prompting a 28 percent drop in share price, to close at 192 yen, 65
percent below the 550 yen-per-share Foxconn agreed to pay for the stake.
Sharp is also under pressure to slash interest-bearing debt,
which ballooned to about 1.25 trillion yen as of the end of June. The
scheduled redemption of Sharp's corporate bonds is also expected to put a
strain on the company's financing.
While the two companies
scramble to salvage the deal, I suggest both parties take a deep breath
and agree on the basic principle that drove the two companies to talk in
the first place.
Taiwan/Japan vs. Korea?
no secret that Hon Hai’s Gou has harbored a naked ambition: build
technology prowess at Foxconn that surpasses Korean giant Samsung
Electronics. For that, the Taiwan giant needs Sharp.
Hon Hai will free it to spread its wings beyond the domestic market. If
Sharp indeed is willing to transfer the company’s advanced,
small-to-medium LCD panel technology to a Hon Hai fab in China,
currently under construction, the partnership with Sharp should be worth
every penny to the Taiwn EMS giant. But if Hon Hai’s true motive is to
gobble up Sharp and run it as its subsidiary, Hon Hai is not only losing
Sharp’s face but also losing the company’s trust.
This might be
the end game for Hon Hai, after all. But if Sharp is really
uncomfortable with this alliance, maybe it’s time for the Japanese
company to start looking for another investor. Either way, this deal is
clearly running out of time.
LCD-based support plan is up for renegotiation
to slash 5,000 jobs
to transfer LCD technology to Hon Hai’s China plant