The Strategist

Sharp's Stocks Went Negative In Front of Possibility of Deal-Breaking

03/23/2016 - 15:07

Japanese Sharp’s quotes are falling as investors are staying concerned about the fact that the acquisition of a controlling stake in Sharp by Taiwanese Foxconn may be broken.

Photo taken by Lombroso
Photo taken by Lombroso
At the close of the Tokyo Stock Exchange’s trading sesion on Tuesday, March 22, prices of Sharp’s securities slipped by 6.5%. This is the biggest drop in a week.

Investors' concerns are not unfounded. It's been a month since the signing of the preliminary agreement between Sharp and Foxconn. During this time, the transaction has already been postponed several times.

The main factor in the collapse of Sharp’s quotations this week was the news that Foxconn plans to reduce the amount of the purchase to 100 billion yen, or about $ 900 million.

This decision was triggered by the Taiwanese vendor’s fear regarding future losses and Sharp’s revenues declined for the year, which ends March 31, 2016.

At the same time, the Foxconn is still focused on the acquisition of 66% stake in Sharp. New talks on the deal are scheduled for the end of March.

At the end of February, 2016, Sharp announced release of new shares in the amount of 489 billion yen ($ 4.4 billion), which Foxconn agreed to buy. Later, however, the Taiwan side has postponed the deal explaining it by getting information about the risks of Sharp’s debt, which was not previously known.

The media then reported that the amount of potential liabilities could be 300 billion yen ($ 2.65 billion). Later, it was said that this figure is too high and the Foxconn, having examined the question closely, is not going to abandon the deal because of the new details.

However, the iPhone smartphones assembler still decided to wait for Sharp’s statements before making a final decision. At the end of the current fiscal year, which runs until the end of March 2016, the Sharp still expects an operating profit of 10 billion yen on sales of 2.7 trillion yen. The analysts, which refers to news, expect an operating loss of 24 billion yen.

Sharp's Board of Directors in February unanimously decided to accept Foxconn’s offer to purchase the company's assets of about 700 billion yen ($ 6.2 billion). Sharp is ready to sell Foxconn 65,9% of its shares for $ 4.3 billion. The remaining amount will be made in additional investments.