Foxconn Delaying Sharp Takeover as Questions Arise About the Deal

Questions about Sharp's financial liabilities and future financial risks are holding up the deal, which was slated to be signed this month.

Sharp, Foxconn, acquisition, iPhone maker, iPhones, smartphones, merger

Foxconn's $6.24 billion takeover offer for Sharp has apparently been put on hold at the last moment while the Taiwanese electronics parts assembler looks more deeply into Sharp's financial liabilities before signing the deal.

Sharp's board had voted to sell itself to Foxconn Technology Group on Feb. 25 after being pursued in a bidding war, but the completion of the deal was halted hours after the Sharp vote by Foxconn as it analyzes what the financial risks the purchase would entail, according to a Feb. 25 article in The Wall Street Journal.

The delay, revealed by anonymous sources familiar with the matter, is aimed at giving Foxconn more time to look into a reported list of some $3.1 billion worth of potential liabilities that Sharp revealed as the final deal approached, according to the article. Those financial liabilities could include "lawsuits, accounting changes, supply contracts or other uncertainties," the story stated. "The people said Foxconn is reviewing the 100-item list and the company hasn't given up on the deal."

In a statement to The Journal, Foxconn said it had notified Sharp that it wanted to "clarify the contents" of Sharp's liability list. "We have to postpone the signing before both sides can reach an agreement. We hope to clarify it quickly and to bring this deal to a successful conclusion."

The last-minute glitch was a surprise after Sharp's earlier vote to sell itself to Foxconn, The Journal reported. Foxconn had even upped its offer for Sharp to $6.24 billion, from its original offer of $5.9 billion earlier in February. The deal had been expected to be signed later this month, The Journal reported.

In Sharp's 2015 annual report, the company had listed about $153 million in contingent liabilities, which is about 5 percent of the $3.1 billion in potential liabilities that are now being analyzed, The Journal reported. The 2015 annual report, however, "also lists several additional contingent liabilities without estimating their potential financial impact," the story reported. "These include potential costs related to the purchase of raw materials and electricity for making solar cells. Another contingent liability involves a European Union antitrust investigation and North American civil lawsuits involving Sharp's panel business."

Foxconn, the largest worldwide assembler of Apple iPhones, has been tussling for Sharp against another buyout offer from the Innovation Network Corp. of Japan (INCJ), a government-backed fund, according to an earlier eWEEK story.

Originally, INCJ appeared to lead in the running for Sharp, but that changed earlier in February when Foxconn began its dogged pursuit of the company.

This is not the first time Foxconn has shown interest in Sharp, which makes consumer electronics and provides liquid crystal display panels to Apple and other smartphone vendors, according to an earlier Journal report. In 2012, Foxconn was preparing to take a 10 percent stake in Sharp, but the deal fell apart after a poor Sharp earnings report.

Under Foxconn's pending deal for Sharp, Foxconn would invest about $4.4 billion in Sharp, in exchange for the issuance of new shares, according to a recent regulatory filing, The Journal reported.

In August, Chinese smartphone maker Xiaomi began partnering with Foxconn to try to carve out a bigger piece of the huge consumer handset market in India by assembling phones there to cut costs and simplify distribution. The devices will be assembled in a factory in the southern state of Andhra Pradesh, according to an earlier eWEEK story. Xiaomi's first locally made smartphone, the $109 Redmi2 Prime, rolled off the assembly line in India almost immediately after the announcement. Xiaomi entered the market in India in July 2014 and has become the second-largest player for phones in the country. Foxconn previously had assembly plants in India.