Taiwan’s Foxconn will acquire two-thirds of ailing electronics maker Sharp, marking the largest acquisition of a Japanese tech firm by a foreign company and bolstering its position as Apple Inc’s biggest supplier.
Sharp said it would issue around $4.4 billion worth of new shares to Foxconn, known formally as Hon Hai Precision Industry Co. Foxconn’s total investment is set to be more than 650 billion yen ($5.8 billion) in the loss-making liquid crystal display maker, a source familiar with the matter said.
Sharp’s stock tumbled 14 percent as the share dilution looked larger than expected, with traders noting that the deal included the issuance of a class of shares that would be convertible next year.
The agreement, which signals an opening up of Japan’s insular technology sector to foreign investment, will see Sharp start mass-producing organic light-emitting diode (OLED) screens by 2018, around the time Apple is expected to adopt the next-generation displays for its iPhones.
Thursday’s decision comes after five years of courting by Foxconn founder Terry Gou, who sees ownership of Sharp as a way to better compete with Asian rivals such as Samsung Electronics Co.
“Sharp has the technology to build out the components to compete with Samsung as an Apple supplier, which means that with Sharp under its umbrella Foxconn can help Apple wean itself off Samsung,” said Gavin Parry, managing director of Parry International Trading, a brokerage in Hong Kong.
“This gives Foxconn better pricing power with Apple,” he added. Sharp’s board voted unanimously to accept the offer over a rescue by a state-backed investment fund, sources said, declining to be identified as they were not authorized to speak on the matter. Foxconn declined to comment. Foxconn shares ended 2.6 percent higher.
THINNER, LIGHTER, FLEXIBLE
Sharp said it aimed to become a global supplier of OLED screens, which are thinner, lighter and more flexible than current displays. South Korea’s Samsung Display and LG Display are also investing heavily in the new technology.
The century-old Japanese firm was once a highly profitable manufacturer of premium TVs and a favored screen supplier to Apple. But it has struggled in recent years as massive investments in advanced LCD plants failed to pay off amid price competition with Asian rivals, and two bank bailouts since 2012 did little to help turn its business around.
In agreeing to the deal, Sharp executives have decided to put behind them ill-feelings over the breakdown of a 2012 agreement between the two companies to form capital ties.
Both government and Sharp officials initially backed a rescue plan by state-backed Innovation Network Corp of Japan (INCJ), fearing a loss of the company’s technological expertise to a foreign company. The fund had planned to merge Sharp’s screen business with Japan Display, in which the fund owns a majority stake.
The plan looked set to be another in a long series of deals between domestic rivals, propped up with the help of banks or state funds. But policymakers warmed to Foxconn’s offer as a step towards bolstering foreign direct investment in Japan.
Foxconn’s offer is also seen as beneficial for Sharp’s creditor banks, anxious to limit their losses after helping bail out Sharp twice already. The lenders are Mitsubishi UFJ Financial Group Inc’s core unit Bank of Tokyo-Mitsubishi UFJ, and Mizuho Financial Group Inc’s Mizuho Bank.