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Asia300

Talks with Foxconn enter final stretch as fund waits in wings

Hon Hai Precision Industry Chairman Terry Gou says he is confident about clinching a deal with Sharp.

OSAKA -- Sharp and its suitor, Taiwan's Hon Hai Precision Industry, are continuing tense negotiations as the struggling Japanese consumer electronics maker aims to secure a rescue package that suits its needs.

     Terry Gou, chairman of Hon Hai, better known as Foxconn, has been in Japan this week, visiting SoftBank Group on Thursday and Canon on Friday. Gou on Thursday expressed optimism, saying he is hoping to announce a deal within two weeks. Hon Hai is offering a rescue package worth around 700 billion yen ($6.2 billion) in total.

     Sharp President Kozo Takahashi has said that the company is treating negotiations with Hon Hai as a top priority, but several points of contention have emerged during the talks.

     "It was different from what we previously heard" from Hon Hai, Takahashi was quoted as saying during a meeting with Sharp alumni on Feb. 13. He was talking about the fate of Sharp's solar cell business. Apparently, the Taiwanese company had told Sharp that its main businesses will be kept intact after the acquisition. But Gou indicated on Feb. 5 his intention to spin off Sharp's solar cell operations.

     Sharp was also under the impression that Hon Hai's rescue plan does not involve job cuts, but Gou said that employment will be secured for those 40 and younger.

Once bitten

There is a reason why Sharp has difficulty putting its full trust in Hon Hai. Four years ago, Hon Hai agreed to invest in Sharp. But the Taiwanese firm demanded a renegotiation of the terms after Sharp's stock price fell, causing the deal to go sour. "We must make sure that Hon Hai really intends to pay the amount that it promises," a Sharp official said.

     Given the uncertainty, Sharp is also keeping its communications channel open with the government-backed Innovation Network Corp. of Japan, which has made an alternative offer.

     "The two rescue plans [by Hon Hai and the INCJ] are totally different," Toshiyuki Shiga, chairman and CEO of the public-private investment fund, told the Japan National Press Club on Friday. "We want Sharp to consider thoroughly which is the best for the company. We did our best."

     The fund maintains it has no intention to sweeten its offer, which centers on a 300 billion yen investment to aid Sharp's business growth. But it insists that the true value of its package, which includes lending to LCD panel operations that would be spun off from Sharp, the money the company will get from the spinoff and debt forgiveness by banks, is not so different from what Hon Hai is offering. ICNJ is preparing for a possible breakdown of the talks with Hon Hai.

     With its earnings showing no signs of improvement, Sharp cannot afford to dawdle over making a choice. Its directors are slated to examine the offers from Hon Hai and the ICNJ on Saturday, with the next board meeting being held as soon as Wednesday.

(Nikkei)

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