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Business deals

Japan Display agrees to bailout by Taiwan-China group

But deal could be scuppered by Washington on security concerns

Japan Display has struggled to compete with the likes of Samsung Electronics as it focused on LCD while its rivals moved on to develop OLED, a more advanced technology. (Photo by Hideaki Ryugen)

TOKYO -- Japan Display announced Friday that it agreed to receive a bailout of up to 80 billion yen ($717 million) from a Taiwanese-Chinese consortium, sounding the death knell for Japan's once-vibrant display industry.

Taiwanese electronic component maker TPK Holding, Taiwanese financial services institution Fubon Group and China's Harvest Fund Management will replace Japanese public-private fund INCJ as the top shareholder with a stake close to 50%.

INCJ's voting say will be diluted to about half of its current 25.3%. The consortium will invest in common shares worth 42 billion yen and receive convertible bonds of 38 billion yen that Japan Display will issue.

It was once hoped that Japan Display will restore the country's competitiveness in the field, but it failed to keep up with competition from China and South Korea. The company was created in 2012 through a merger of the liquid crystal display operations of Hitachi, Toshiba and Sony as part of a government-led attempt to reignite the industry.

INCJ's predecessor, Innovation Network Corporation of Japan, took 70% ownership of the new venture for 200 billion yen, which Japan Display then used to set up a cutting-edge production facility in Chiba Prefecture.

But the company struggled over the years to keep up with its rivals. Sales are expected to have plunged by one-third in fiscal year 2019 from 1 trillion yen just three years ago. Display prices have tumbled as Beijing-backed Chinese players flood the market, making it hard for Japan Display to turn a profit.

Although the company earns half of its revenue from sales to Apple, it will continue to make a loss in 2019 due to overinvestment.

Japan Display, like many other companies in the field, also fell behind on the development of organic light-emitting diode technologies. South Korea's Samsung Electronics began using flexible displays in its Galaxy phones two years ago and was able to use its position as the world's largest smartphone maker to ramp up scale and drive down costs.

Japanese companies had begun developing OLED but they were slow to commercialize the screens, confident that liquid crystal displays would continue to dominate the market.

This backfired when Apple, which contributes to half of Japan Display's revenue, decided to adopt OLED in new models it released in 2017. Combined with the flop of an LCD-equipped model released last year, Japan Display was forced to spend over 140 billion yen to lay off workers and streamline facilities.

The Taiwanese-Chinese consortium plans to use Japan Display technology to build an OLED factory in China, tapping government subsidies aimed at promoting local panel production. This will likely mean further cuts to Japanese workers and facilities.

But it is unclear whether the bailout will be scuppered by the U.S. As Japan Display is a major Apple supplier, the Committee on Foreign Investment in the U.S. could block the deal on national security concerns. The watchdog in November expanded its oversight to 27 key industries, including semiconductors, amid growing concerns over Chinese acquisitions of American businesses.

Recently, Lixil Group, the Japanese housing materials supplier, faced CFIUS opposition and was forced to give up on selling its Italian subsidiary to a Chinese company. Another Chinese company intends to cancel an agreement to buy Toshiba's liquefied natural gas business in the U.S., after facing delays in obtaining approvals from American and Chinese authorities.

Japan Display is confident the deal will be passed but a lack of clear criteria for what constitutes a security concern leaves CFIUS with room to intervene. CFIUS could also launch an investigation into whether consortium members have ties to the Chinese government.

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