The on-again and off-again attempt by Foxconn of Taiwan to take over Japan’s Sharp Corp. finally came to an end on Wednesday, March 30.
Foxconn agreed to pay about $3.5 billion for a two-thirds stake of Sharp, the two companies announced. Foxconn managed to slash the original offer by nearly $900 million, after a month-long negotiation.
The Sharp-Foxconn soap opera, playing out publicly since 2012, exposed an unusual level of raw emotion between the two companies.
Closure of the deal was postponed not once but multiple times at the 11th hour by top executives at both firms. A tortuous process is likely to have done some damage to both companies’ employees — whose trust and goodwill will matter in making an effective merger. The outcome of the deal, in my book, still hangs in the balance.
To complicate matters further, Foxconn’s takeover of Sharp is billed as the largest acquisition by a foreign company in Japan's insular technology sector. Imagine the cultural hurdles posed by this arranged marriage.
A colleague of mine at EE Times Japan drily noted, "The only winner in the deal might be Japanese banks," who in the past repeatedly had to bail out Sharp.
The upshot of the merger, from the Japanese industry's point of view, is that Sharp will get a much needed cash infusion from Foxconn. Further, Sharp will be able to keep its storied brand and the company whole under Foxconn.
Had Sharp opted for the bailout deal with Innovation Network Corporation of Japan (INCJ), Japan’s private-public fund, Sharp's LCD business would have been absorbed by Japan Display Inc. Sharp's home appliance business unit would have been merged with that of Toshiba, he explained. In short, there would have been no more Sharp.
How they got here
If there is a list of do’s and don’ts in M&A announcements, Foxconn and Sharp have trampled almost all of them, as they authored a textbook of corporate blunders and discourtesies. They include the leaking of the deal’s contents before it was finally inked and sealed, the inability to negotiate during one company’s stock-market free fall, and withholding the “material information” related to liabilities before the closure of the deal.
The Nikkei Asian Review reported earlier this month that the latest delay happened “after Sharp sent Foxconn a list on Feb. 24 [the day before the signing was scheduled] of some 100 items containing contingent liabilities totaling 350 billion yen, including pensions, government subsidies and possible penalties for breaching existing contracts, according to people familiar with the talks.”
While Foxconn said the liabilities were "new material information" that the company was previously unaware of, Nikkei reported that “Sharp countered by saying it had made the proper disclosures in its financial reports.”
Sharp called the latest incident an “unfortunate misunderstanding.” However, everything that has happened prior to the M&A deal, in my view, bodes ill for the companies’ ability to work out all the kinks in the long-term merger process.
What clinched the deal
Despite all the hoopla, the deal’s clincher is the simple fact that both companies might not survive without each other.
Sharp, in particular, is in deep financial trouble.
In the three quarters ending December 2015 Sharp’s consolidated operating earnings were a negative (loss) of 29 billion yen ($240 million), while “recurring profit” was a negative 52.8 billion yen ($440 million) and net income a negative 108 billion yen ($900 million).
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