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Sharp to end the bidding war between Foxconn and Innovation Network Corporation of Japan

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February 4
8:19 AM 2016

The Sharp Corp. board is supposed to meet today and arrive at a final decision, thereby ending the bidding war between the Taiwanese electronics giant Foxconn and the Japanese government-backed company Innovation Network Corporation of Japan (INCJ). While the board was always been inclined towards INCJ, it is now taking a closer look at Foxconn's raised offer of ¥659 billion ($5.5 billion) versus ICNJ's ¥300 billion.

The board is clearly divided in their opinions regarding the buyout. Some feel the Foxconn offer should not be set aside without serious contemplation while others are staunch supporters of ICNJ which would keep Sharp technology within the Japanese economy. In fact, Sharp's lending institutions, Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., had asked the company to reconsider the generous Taiwanese offer.

Bloomberg reveals that Foxconn Chairman Terry Gou paid a personal visit to the Sharp Osaka headquarters on January 30 to present his final offer, which is double of what its Japanese competition has put forward. The Taiwanese establishment, formally known as Hon Hai Precision Industry Co., is quite insistent on cracking this deal and has been chasing the struggling display panel maker for over a year now. It has, thus, thrown in two very tempting clauses with the offer - one, making no changes to its management and retaining all employees and, two, paying off all Sharp debts.

While Sharp and ICNJ did not comment, Gou said, "I'm very confident" when pressed about his conversation inside the boardroom, as reported by The Indian Republic. A very strategic structure has been presented to the sellers which show that about ¥225 billion will be used to buy preferred stock in Sharp, primarily from the company's two major banks, and another ¥45 billion will be used to buy land from the company. The bank debts amounting to almost ¥700 billion will be taken care of, and a further ¥389 billion will be transferred into the Japanese company for new shares instead of buying out its shareholders.

The Foxconn chairman has played his cards very smartly, making it very difficult for the company board to turn down his bid. According to Nasdaq, Sharp is supposed to present their quarterly reports revealing ¥691.1 billion in revenue and ¥7.2 billion in profit for October-December, which is much less than last year's revenue of ¥762.7 billion and profit of ¥22 billion. The downfall mainly came from its troubled consumer electronics and appliance operations, for which the company had to turn to its banks for a bailout twice in four years.

To support its struggling electronics market, the Japanese government is thus keen on retaining its leading display panel expert within national control. ICNJ also happens to be a major shareholder in Japan's other major LCD provider, Japan Display Inc., which along with Sharp, supplies all smartphone display panels its major customer, Apple.  The Japanese government believes if it is able to retain Sharp Corp. in the country, its synergy with Japan Display would reap great returns.

Toyodo Uemura, a spokesman for Sharp, chose not to disclose the content of the discussion yet, whereas Foxconn has stated that it has provided the best value for Sharp shareholders, employees and stakeholders. Meanwhile, all the deal chatter saw an additional rise in its shares by 2.2%, after the 10% increase earlier this year. 

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