Foxconn’s proposed acquisition of Sharp has hit a snag, just hours after Japan-based Sharp announced that it had agreed to the buyout, which is estimated at around $6.2 billion.
The Wall Street Journal reports that, despite Sharp’s confirmation, Foxconn has not signed an agreement and has put the deal on hold because it harbors concerns over Sharp’s financial future. The Journal cites sources who claim that Foxconn is evaluating a 100-point list in the hopes that it can revive the deal.
“We already notified Sharp on the same day [before Sharp held its board meeting on Thursday] that our side had to clarify the contents,” the company told the Journal in a statement. “We have to postpone the signing before both sides can reach an agreement. We hope to clarify it quickly and to bring this deal to a successful conclusion.”
The glitch is an embarrassment for Sharp, which had confirmed a deal — approved unanimously by its board — just hours earlier.
The deal — if completed — would be the largest acquisition of a Japanese company from an overseas purchaser. Sharp disclosed that it actually reject a Japan-based bid from state-backed Innovation Network Corp, which had proposed splitting Sharp and its display business, and integrating the latter into Japan Display, an LCD joint venture between Sony, Toshiba, and Hitachi.
Sharp disclosed that Foxconn had agreed in invest in multiple areas of its business, including its OLED screen segment. Sharp said its plans to increase its production of OLED screens, which are increasingly replacing LEDs thanks to better performance, to 90 million 5.5-inch screens per year by 2019. That output volume is estimated to worth around 260 billion yen, or $2.3 billion. Sharp said it will also create products around the Internet of things, and in particular cloud-based services for its consumer products, and develop new camera modules for smartphones and cars.
Sharp has been in various stages of financial trouble over the past few years, but the company still has a visible consumer electronics business — most notable in TVs — and it supplies a range of components for leading tech companies . The latter part is where Foxconn’s interest almost certainly lies, particularly since Sharp is a top producer of display panels, which happens to be one area where Foxconn (also known as Hon Hai Precision) outsources parts from third-parties.
Potentially bringing its own parts to the table, should it acquire Sharp, could be beneficial to Foxconn on a number of levels. First, it’s cheaper to source your own parts than pay market rate to third parties who currently supply them. Also, the arrangement could favor Apple — Foxconn’s most important client — because Foxconn’s panels currently come from companies like Samsung and LG, which sell components and run consumer businesses that directly rival Apple’s smartphones and tablets. Thus using display panels from Foxconn-owned Sharp increases Foxconn’s (already significant) margins on each Apple device sold, and helps keep Apple’s money away from its competitors.
Beyond that, Foxconn has also branched out into electronics under its own brand, including TVs which retail in 7-Eleven stores in its native Taiwan. Clearly there are synergies here with Sharp in the TV business, and potential other consumer segments like smartphones.
A closed deal would end years of Foxconn flashing admiring glances at Sharp. Four years ago, it came close to securing a 10 percent investment in the Japanese firm, only for the deal to fall through, while Foxconn CEO Terry Gou made a $617 million (personal) investment in a Sharp subsidiary in 2012 in an effort to move potential collaborations forward.
Note: The original version of this post has been updated to reflect developments.