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Sharp weighs Hon Hai's word as decision time looms

OSAKA -- Sharp will choose as early as this week whether to accept Taiwanese manufacturer Foxconn's takeover offer -- which has the advantage on paper -- or take a capital injection from a government-backed fund, which may yet prevail.

     The struggling Japanese electronics maker is assessing whether it can count on Foxconn, or Hon Hai Precision Industry, to deliver on its promises.

     Sharp's board may vote on the competing proposals as soon as Wednesday.

     Hon Hai Chairman Terry Gou has talked about mass-producing organic light-emitting diode panels at the Sharp factories that now make small and midsize liquid crystal displays for smartphones and tablets. Gou has also raised the possibility of building an OLED panel production line at Sakai Display Products, a joint venture with Sharp near here. Sharp appears receptive to these proposals.

      Hon Hai envisions providing a total of around 700 billion yen ($6.19 billion) in aid to Sharp. It would acquire the preferred-share stakes in Sharp held by its main bank lenders, which would not be called on to provide additional financial aid to the Osaka-based company.

     A team of senior legal affairs officials from Sharp went over the details of Hon Hai's proposed deal last week in Taiwan. Distrust lingers at Sharp since an agreement on a capital infusion from the Taiwanese manufacturer four years ago fell through after Sharp's share price tumbled. This time, Sharp is demanding a 100 billion yen reverse breakup fee to hold Hon Hai to its word.

     Meanwhile, the public-private Innovation Network Corp. of Japan continues working to persuade Sharp directors of the merits of its offer. It is proposing to invest 300 billion yen in Sharp and create a 200 billion yen lending facility to fund growth.

     Under the plan, up to 150 billion yen of Sharp's outstanding debts to its two main bank lenders would be converted to equity, while as much as 200 billion yen of their preferred-stock holdings would be virtually written off. One of the lenders, Mizuho Bank, frowns on this idea. If Sharp chooses the INCJ offer, it may struggle to win over the banks.

     Two of the five outside directors on Sharp's 13-member board are senior executives at the bank-affiliated funds that hold the preferred shares. They support the Hon Hai offer, which would not impose a haircut on those investments. People close to the INCJ say that directors with a vested interest in the outcome should recuse themselves from the vote.

(Nikkei)

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