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Osaka punch

25 Feb 2016 By Quentin Webb

Sharp falling into Taiwanese hands would be a messy milestone. The future of the ailing display-maker was shaping up to be an acid test of Japanese reform. Now a putative deal with Taiwan’s Foxconn has descended into farce.

On Feb. 25 Sharp unveiled a long-awaited plan to sell control to various arms of the contract electronics giant for about 489 billion yen ($4.4 billion). But hours later the Taiwanese side said, extraordinarily, it was poring over last-minute “material information” couriered over by Sharp and could not sign anything yet.

It was not meant to be like this. When Foxconn recently overtook state-backed rival Innovation Network Corp of Japan as the leading bidder, that seemed like a promising sign of change in corporate Japan. Victory would mean the board picking the most compelling pitch, not the establishment favourite – even if the bidder was a foreigner. In truth, the picture is more nuanced, since Foxconn’s bid is far more respectful of the status quo than INCJ’s breakup proposal, and softer on creditors, too.

Failure at this stage would embarrass all concerned. But nor does the communications breakdown bode well for any combined future. The two companies have already differed publicly about whether Foxconn was the preferred bidder or not. Sharp now looks either desperate in leaving it so late to share important data points, or confused in failing to understand Foxconn. Analysts who were already withering about the deal’s rationale will take even more convincing.

Foxconn boss Terry Gou now has to decide whether to seal his unlikely victory in the light of new information. If he does, further challenges await. He will have to create a lot of value despite limited direct overlap between the two businesses. Judging by operating profit at rivals, Sharp is probably worth just 700 billion yen or so on an enterprise value basis, Bernstein analysts reckon – less than the value of its net debt and preferred shares. Taking over Sharp was already bold. The last-minute surprise makes it even more so.


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