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 The two companies have eyed each other warily since Foxconn
founder and billionaire Terry Gou pulled out of a planned capital
tie-up and strategic partnership with Sharp in 2012.
Missteps in communication last week, when Sharp's board met and
announced a decision to sell a two-thirds stake to the Taiwanese
group, ratcheted up tensions, upsetting Gou and causing
embarrassment at Sharp.
On the eve of that board meeting, Foxconn had asked Sharp to delay
voting on a deal as it had just received "new material information"
from Sharp that it hadn't seen before and needed to clarify.
"It seemed Sharp simply ignored Foxconn," said one individual
familiar with Foxconn's take on the matter.
The information listed around 300 billion yen ($2.66 billion) in
contingent liabilities at Sharp. The list was pulled together by
working level officials at Sharp and forwarded, without top
officials seeing it, to Foxconn as a goodwill gesture to make the
buyer aware of worst-case scenario risks, sources said. They were
not liabilities that required formal disclosure.
It didn't go down well on the Taiwan side.
 "They felt violated," said a person briefed on the issue. Another
person said Gou shouted at his team for not having discovered these
liabilities in the first place.
By late Friday, the mood had calmed and the two companies' CEOs met
in China to clear the air, sources said. Sharp and Foxconn have now
agreed to extend a deadline for the takeover talks by a week or two,
reflecting the importance of a deal, estimated to be worth nearly $6
billion, to both sides.
Sharp would have a much-needed financial lifeline, while Foxconn,
formally known as Hon Hai Precision Industry Co <2317.TW>, would get
control of technology it needs to strengthen its hand with major
client Apple Inc <AAPL.O>.
RUNNING DEEP
The hitch revives lingering ill-will from four years ago, when
Foxconn agreed to take a stake in Sharp at 550 yen a share as part
of a broader partnership. Then, Sharp warned of losses, and Foxconn
walked away.
Sharp shares sank 74 percent over the next seven months.
Gou, however, personally bought a stake in Sharp's LCD TV panel
plant in Osaka, and some at Sharp credit him with improving
operations there.
A turning point in the latest deal came when Gou wowed Sharp's
board, independent directors and creditors with his presentation of
a takeover plan on Jan. 30, according to those briefed on the
matter.
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"Terry's a very convincing guy ... I've seen him use his magic,"
said a person familiar with how Gou operates.
Another person familiar with Gou said: "Sharp's blueprint, Terry is
very clear about it and knows this stuff like the back of his hand."
But there were still nagging doubts in Japan.
"There are some doubts whether Hon Hai will really keep its
promise," one official involved in the negotiations said on Feb. 4,
when Sharp's 13-member board decided to prioritize talks with
Foxconn over a competing offer from state-backed Innovation Network
Corp of Japan. INCJ had been seen as strong favorite to take over
Sharp and keep Japan's insular tech industry out of foreign hands.
The next day, Gou flew his team to Sharp's Osaka headquarters and
emerged triumphantly waving a document, proclaiming Sharp had
granted Foxconn preferred negotiation rights.
Sharp officials said the document actually referred to Foxconn's
extension of a takeover offer for Sharp.
"This made (Sharp CEO Kozo) Takahashi and other executives rethink
how trustworthy Gou would be," said one of the sources familiar with
thinking in the Sharp camp.
That is now in the past.
"From these negotiations and from experience, Terry (Gou) has told
his team time and again to be more respectful of and have more
understanding of Japan's traditions and way of doing things," said
one of the sources familiar with the thinking at Foxconn.
"Through the communication of the last 2-3 days, from the top level
to the team level, I hope (the cooperation) will improve," the
person said.
(Reporting by Makiko Yamazaki and J.R. Wu, with additional reporting
by Taro Fuse; Writing by Ritsuko Ando; Editing by Miyoung Kim and
Ian Geoghegan)
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