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 Foxconn, formally known as Hon Hai Precision Industry Co, will pay
about $3.5 billion for a two-thirds stake, nearly $900 million less
than its initial offer, the companies said.
The deal marks the largest acquisition by a foreign company in
Japan's insular tech industry and the end of independence for a
100-year-old company that started out making belt buckles and
mechanical pencils.
It would also give Foxconn control of Sharp's advanced screen
technology and help strengthen its pricing power with major client
Apple Inc.
Highlighting Sharp's dire finances, the ailing display maker
estimated an operating loss of around 170 billion yen ($1.5 billion)
for the year through Thursday in contrast to its earlier profit
forecast of 10 billion yen.
Foxconn said it will buy Sharp's shares at 88 yen per share, a 35
percent discount to their close on Wednesday.
 The two companies had been on the verge of finalizing a deal last
month but Foxconn postponed at the last minute following the
emergence of previously undisclosed contingent liabilities at Sharp.
The hitch revived ill will from four years ago, when Foxconn agreed
to take a stake in Sharp as part of a broader partnership. Sharp
then warned of losses and Foxconn walked away as the shares sank.
Analysts said that even without the history of distrust, there was
little assurance the combined company will be able to deflect
pricing pressure in LCDs or beat rivals in OLED, a new screen
technology which Apple is expected to adopt for its iPhones by 2018.
"If you are talking about two years, it will be difficult. Three
years, there is potential. Five years, then definitely,” said Kylie
Huang, analyst with Daiwa-Cathay Capital Markets in Taipei.
She added that Samsung Electronics' display unit and LG Display will
for some time likely remain the preferred choice for OLED or organic
light-emitting diode screens which are thinner, lighter and more
flexible than other displays.
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Shares in Sharp rose 4 percent on Wednesday ahead of the
announcement. The Taiwan Stock Exchange suspended trading in Foxconn
shares for the Wednesday session.
Although the Japanese firm became a highly-profitable manufacturer
of premium TVs, massive investments in advanced liquid crystal
display (LCD) plants failed to pay off as more nimble Asian rivals
slashed prices. Two bank bailouts since 2012 have failed to help
turn its business around.
The Yomiuri newspaper reported on Wednesday that the Taiwanese
company was planning to overhaul Sharp's management including
replacing its CEO.
Sharp has said Foxconn is set to pick a majority of its board. But
investors had expected it to leave much of management in place for
some time. Sources had said earlier this year that Foxconn Chief
Executive Terry Gou offered to keep most members of top management
in place, and to not fire employees.
Foxconn executives in Taipei declined to comment on plans for CEO
Kozo Takahashi, saying more details would be available at a signing
event and news conference on Saturday.
(Reporting by Makiko Yamazaki and J.R. Wu; Additional reporting by
Chang-Ran Kim and Chris Gallagher; Writing by Ritsuko Ando; Editing
by Edwina Gibbs)
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