Hon Hai seeks to reduce price it pays for Sharp

Hon Hai Precision Industry Co is seeking to reduce the amount it pays for Sharp Corp due to concerns about potential liabilities and future earnings, the Yomiuri newspaper reported. The Taiwanese company is also renegotiating terms with Sharp’s lenders, according to the Nikkei.
Hon Hai’s investment in new equity to be issued by Sharp may shrink by 10% to 20% from the originally agreed ¥489bn ($4.38bn) as it cuts the price per share from ¥118, the Yomiuri said, citing an unidentified person.
Sharp’s shares closed at ¥138 in Tokyo on Friday.
Hon Hai is also in talks with Sharp’s main banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group, to reduce interest rates on ¥510bn in credit lines and loans due at the end of March, the Nikkei newspaper reported, without saying where it got the information.
The Taiwanese company may be asking the lenders to accept less than the ¥100bn it agreed to pay them for preferred shares in Sharp or to put off the purchases for the time being, the Nikkei said.
Sharp spokesman Yoshifumi Seki declined to comment on both reports when contacted by phone yesterday. “We have no new update since February 28,” Louis Woo, a spokesman for Foxconn Technology Group, Hon Hai’s parent company, said in an e-mail. Calls to Mizuho and MUFG went unanswered yesterday.
Hon Hai’s ¥600bn takeover of the struggling Japanese manufacturer has been stalled almost since Sharp’s board agreed to it last month.
Within hours, Foxconn said it would postpone finalising the deal after new information provided by Sharp included about 300bn yen in possible liabilities for restructurings and layoffs, people familiar with the matter said at the time.
Last week, Foxconn again said it would delay the agreement in order to review Sharp’s performance in the current quarter, said people with knowledge of the matter.
Foxconn’s lawyers and bankers have sorted through the contingent liabilities and concluded earlier this month they will likely not require major changes in the board-approved deal, people familiar with the matter have said.
The Taiwanese company is taking extra precautions with the period’s financial results because of the last-minute notice about the liabilities, the people said.
Hon Hai reached a basic agreement with Sharp’s banks over a ¥300bn credit line, the Yomiuri newspaper reported on Saturday, potentially clearing a hurdle toward the takeover.
Sharp’s board chose Foxconn’s bid over a competing offer from Innovation Network Corp of Japan, a government-backed investment fund that planned to pay about ¥300bn. Sharp has forecast a ¥10bn operating profit for the year ending March 31 and didn’t give net income or quarterly outlooks.
The company will probably report a net loss of ¥23.9bn in the final three-month period, according to an average of four analyst estimates compiled by Bloomberg.
The company has been losing money for years and its need for financial support set off the takeover battle between Foxconn and INCJ last year.
Its cash totalled ¥208.5bn at the end of December, according to data compiled by Bloomberg.