-- This article was written by Renee Cordes of The Deal
After months of trying, Taiwan's Hon Hai Precision Industry, better known as Foxconn, has unveiled an agreement to hook struggling Japanese electronics maker Sharp at a sharp discount.
Foxconn announced an agreement Wednesday, Mar. 30, to buy Sharp for around 389 billion yen ($3.5 billion), or a little over half the amount it was willing to pay last month for the Osaka-based target in a previous agreement that Foxconn put on ice.
The news comes more than a month after an agreed deal for ¥700 billion. Hours after Sharp's board gave the green light for that transaction, Foxconn got cold feet and suspended the agreement amid concerns over contingent liabilities, or future financial risks, which Sharp discounted and said had been fully disclosed.
Foxconn, best known as a supplier to iPhone maker Apple (AAPL), had beaten out a rival ¥300 billion offer from Innovation Network of Japan Corp. The state-owned fund, known as INJC, wanted to break up Sharp and add its flat panel business into its Japan Display, which includes 70% stakes in competing display businesses from Sony (SNE), Hitachi and Toshiba.
Foxconn then put its earlier agreement on hold with Sharp to seek a lower price.
Under the terms of the new accord, Foxconn will buy Sharp common shares for ¥88 apiece, well below the ¥118 a share it previously offered. The ¥88 a share price tag is also 35% cheaper than Sharp's ¥135 Wednesday closing price in Tokyo.
The deal will see Foxconn and its affiliates take an initial 66% stake in Sharp at a price of ¥88 per common share.
It also includes a new clause giving Foxconn a backup plan that would let it buy Sharp's display business if the deal falters anytime before Oct. 5, 2016. If that does indeed happen, Sharp will give Foxconn, or a third party chosen by Foxconn, exclusive negotiation rights for three months to buy the business.
"I am thrilled by the prospect for this strategic alliance and I look forward to working with everyone at Sharp," said Foxconn founder and CEO Terry Gou said in a statement. "We have much that we want to achieve and I am confident that we will unlock Sharp's true potential and together reach great heights."
Kozo Takahashi, president and CEO of Sharp, added that he's pleased with the decision to join forces to accelerate innovation with the creativity and entrepreneurial spirit of both companies.
Sharp said Wednesday that its main lenders, Mizuho Financial Group and Mitsubishi UFJ Financial Group, had agreed to extend the deadline for the payment of ¥360 billion in loans and ¥150 billion in credit lines by a month, until the end of April.
Separately on Wednesday, Sharp predicted a ¥170 billion operating loss for the fiscal year through March 31 and ¥2.45 trillion of revenue, down from earlier predictions of a ¥10 billion operating profit and ¥2.7 trillion in revenue. The company blamed falling sales in LCD monitors for flat-screen television sets, home appliances and digital printers in the Chinese market.
-- This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.
