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Companies named in state-funded bailout look for plan B

TOKYO/OSAKA -- As Japanese electronics maker Sharp leans toward a deal with Taiwan's Hon Hai Precision Industry, companies that were part of a domestically focused rehabilitation proposal are looking for alternatives should their plans unravel.

     The government-backed Innovation Network Corp. of Japan had planned to join Sharp's liquid crystal display unit with Japan Display. It also aimed to join Sharp's white goods and point-of-sale units with Toshiba, and the solar power business with Showa Shell Sekiyu.

     But the Taiwanese manufacturing giant, also known as Foxconn, offered a bailout worth about 700 billion yen ($5.98 billion). The INCJ, in comparison, proposed a capital injection of up to 350 billion yen. A company's board is liable for any losses caused by its failure to exercise due care. Sharp's board members could be sued for taking the INCJ deal unless they somehow convince the company and its shareholders that they are making the best, rational decision.

     The INCJ's plan to integrate Sharp units with their domestic competitors is increasingly likely to fall through. But Japan Display, which had made the most preparations for the potential integration, is relatively calm. Though it set up a team in December toward acquiring Sharp's LCD unit, concerns had always existed within the company that the deal could result in excess production capacity.

     Japan Display was created in 2012 by merging the LCD businesses of Hitachi, Toshiba and Sony. It operates five domestic plants inherited from its predecessors. Sharp also has five, including the Sakai plant it runs jointly with Foxconn. INCJ, Japan Display and Sharp all agreed that a realignment would be necessary as part of a deal.

     Japan Display would face potential delays in bolstering facilities and other management decisions while undergoing antitrust probes, which can take about two years. Screening by foreign antitrust authorities may take even longer. "Two years is a hard blow in the LCD industry, where technology advances so quickly," a company executive said.

     Others worried that the deal could impact the development of organic light-emitting diode technology, which is expected to be the future of display panels.

     But Japan Display still pushed for the deal in order to curb its dependence on smartphone panels, which account for 80% of sales. The company hoped that integrating Sharp's LCD business, which has a strong presence in computer, tablet and in-car displays, would help it find new customers. If Sharp chooses Foxconn, Japan Display will boost research and development spending for its new businesses, such as in-car displays and digital signs, to find a path for survival on its own.

     For Toshiba, "selling the white goods unit to foreign companies is an option" if the Sharp deal falls through, President Masashi Muromachi told reporters Thursday. "We want to present some sort of direction by the end of February," he said.

     Toshiba plans an overhaul of its business structure. The struggling company has taken steps to realign its medical equipment unit as well as several of its semiconductor businesses.

(Nikkei)

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