Japan state-backed fund in advanced talks to invest in Sharp: sources

[December 18, 2015]    By Taiga Uranaka and Makiko Yamazaki

TOKYO (Reuters) - A Japanese state-backed fund is in advanced talks to invest in Sharp Corp with plans to overhaul the manufacturer's consumer electronics business including a possible deal with Toshiba Corp, people familiar with the matter said.

Innovation Network Corporation of Japan (INCJ) considered investing in Sharp's display division and merging it with rival Japan Display Inc, in which the fund is the biggest shareholder, sources told Reuters in recent months.

But INCJ is now looking to inject funds into Sharp's overall business and pursuing broader restructuring including cost cuts and deals such as a merger with Toshiba's consumer electronics arm, people with knowledge of the matter told Reuters this week.

Sharp and other Japanese consumer electronics makers have lost market share over the past decade to Apple Inc, Samsung Electronics Co Ltd and other more nimble rivals.

To stay competitive, the government in 2009 launched INCJ, which was credited with the turnaround of auto-related semiconductor supplier Renesas Electronics Corp.

Last week, Sharp received an investment offer from Taiwan's Hon Hai Precision Industry Co Ltd, also known as Foxconn, a source said on Wednesday.

Other potential investors included a private equity fund, a separate senior banking source said.

But discussions with INCJ are in a more advanced stage, and the government is backing its plans as a way to help restructure the domestic consumer technology industry, the people said this week. It was unclear how much INCJ was ready to spend.

A Sharp spokesman on Friday said "nothing has been decided at this point of time" as the company was still negotiating options.

An INCJ spokesman declined to comment.

Toshiba, which is restructuring as it recovers from an accounting scandal, said it was considering "various options" for its consumer electronics business.

AT ODDS

A basic agreement between INCJ and Sharp would likely be concluded by around March, one person told Reuters. But the fund and Sharp's lenders were still at odds over issues such as debt forgiveness, the people with knowledge of the matter said.

INCJ has asked Sharp's main creditors to forgive part of its roughly 700 billion yen ($5.75 billion) debt in return for investment, the people said. The lenders are keeping Hon Hai's offer on the table to win better terms from INCJ, they said.

Sharp's main creditors are Mitsubishi UFJ Financial Group Inc subsidiary Bank of Tokyo-Mitsubishi UFJ, and Mizuho Financial Group Inc's Mizuho Bank. Spokespeople for both declined to comment.

An official at INCJ said it hoped its involvement would help prevent technologies from being transferred overseas, as could be the case should investment come from abroad.

Sharp's innovations include energy-efficient high-resolution screen technology known as "IGZO", used in high-end tablet computers and larger displays.

"As a state-backed fund, we would not go for partnerships that would result in a loss of initiatives or technology leaks overseas," the official told Reuters.

The official and other sources declined to be identified as they were not authorized to speak publicly on the matter.

(Reporting by Taiga Uranaka and Makiko Yamazaki; Additional reporting by Reiji Murai; Writing by Ritsuko Ando; Editing by Christopher Cushing)

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