The Strategist

Foxconn To Tie Up With Sharp for $ 6.25 Billion

02/25/2016 - 14:41

Today it was announced that Sharp Corporation of Japan accepted a purchase proposal from the Taiwanese company Foxconn. The deal amounted to $ 6.25 billion. In connection with the current deal, Japan resumed debate on the admissibility of the sale of large companies to foreign investors.

Taiwanese technology company Foxconn Technology Group will acquire Japanese Sharp Corporation, the transaction will amount to 700 billion yen ($ 6.25 billion). According to Sharp, its Board of Directors has agreed to accept the purchase offer from the company Hon Hai Precision Industry, known as Foxconn. Foxconn will pay 118 yen ($ 1.05) for each share of the company; this is 32% less than the cost of Sharp shares on Wednesday evening. In the course of the transaction, Sharp will release new shares that will be sold to Foxconn. Following the transaction, Foxconn will own 65.9% of shares of Sharp. Another contender for the purchase was the Japanese investment fund Innovation Network Corp. of Japan (INCJ), among whose shareholders is the Government of Japan, along with dozens of local companies. To obtain the consent of Sharp, the Taiwanese company overbidded Japanese INCJ, - the latter offered 300 billion yen (about $ 2.6 billion).

Foxconn manufactures high-tech devices used by many famous companies, including iPhone, iPad and MacBook for Apple, cameras for Canon, PlayStation game consoles for Sony. The information that Foxconn wants to buy Sharp appeared in late January. Then, the name of the game was almost $ 5.3 billion.

Sharp has been experiencing serious financial difficulties for several years. Competition from Chinese and Taiwanese manufacturers led to lower prices on the displays for smartphones. Earlier this year, Sharp has reduced the forecast operating revenue for the current year, from 80 billion yen to 10 billion yen. The company manufactures consumer electronics, and is one of three suppliers of displays for iPhone. "Sharp shareholders faced with strong dilution of their interest, but at least their shares already worth something. This is not a victory for Sharp shareholders. And I'm not sure if it is a victory for Foxconn, and the Taiwanese company's shareholders do not find that their money just evaporated at some point,"- commented analyst at Jefferies Group Atul Goyal on the transaction.

Sharp’s sale to the Taiwanese companies resumed debate on the admissibility of the sale of large companies to foreign investors. Critics of the deal say that Sharp had to accept INCJ’s offer. Earlier, Prime Minister of Japan Shinzo Abe called for increasing the country's openness to foreign investment. On Thursday, the Minister of Economy, Trade and Industry Motoo Hayashi expressed hope that Sharp will continue to develop after the purchase, and will save jobs so that the interests of the regional economy would be met.

Update: A couple of hours ago, Foxconn has suspended the deal to purchase Sharp. As reported by Reuters, the company explained that they have received from a Japanese partner some information that requires clarification of certain details in the already reached agreements. Signing of the agreement is suspended until a full consensus.