Taiwan concerned Hon Hai over-paying for Sharp stake, seeks more detail

TAIPEI Thu Aug 9, 2012 12:56am EDT

Sharp Corp's Aquos TVs are displayed at an electronics store in Tokyo August 8, 2012. REUTERS/Yuriko Nakao

Sharp Corp's Aquos TVs are displayed at an electronics store in Tokyo August 8, 2012.

Credit: Reuters/Yuriko Nakao

TAIPEI (Reuters) - Taiwan's Economics Ministry, which vets all outbound investments, has asked Hon Hai Precision Industry (2317.TW) for more detail on a planned tie-up with struggling Japanese TV maker Sharp Corp (6753.T), saying an initial agreement looks expensive.

The ministry's investment commission said on Thursday it had returned the company's application to inject cash into Sharp, seeking more information on the deal's likely returns. The move could play in Hon Hai's favor as it seeks to renegotiate better terms of a deal that was first struck in March.

"We think Hon Hai has not explained enough about the investment efficiency of the deal, which is related to price ... the deal is a little pricey," Emile Chang, deputy executive secretary of the commission, told Reuters.

Hon Hai agreed in March to buy around a tenth of Sharp for $844 million, or 550 yen per share, as part of a tie-up in liquid crystal display (LCD) production. Both companies supply parts for Apple Inc (AAPL.O) mobile devices. Since then, Sharp shares have tumbled to around 190 yen.

Hon Hai needs the commission's approval before it can invest in Sharp. The commission reviews all mergers and acquisitions involving foreign companies, and last year blocked a $1.6 billion KKR-backed (KKR.N) management buyout of electronics component firm Yageo (2327.TW).

Hon Hai executives were not immediately available for comment.

Hon Hai said last week that Sharp had effectively released it from the terms of the March deal, and this week a spokesman said the two companies were in talks to renegotiate a deal, with Hon Hai looking to pay less per share or take a bigger stake in Sharp.

Bevan Yeh, a senior fund manager at Prudential Financial Securities Investment Trust in Taipei, said the Taiwan ministry's decision could hasten a new deal between the two firms. "I think the return of the application from the government will add pressure and speed up the price renegotiation process," he told Reuters.

SHARP DROP

Shares in Sharp have slumped by two-thirds since the March agreement, with Japan's last big maker of LCD screens and the Aquos TV brand, last week reporting a $1.2 billion quarterly operating loss and announcing its first job cuts in more than 60 years as it battles waning global demand for TVs and competition from rivals led by Samsung Electronics (005930.KS).

Hon Hai chairman and founder Terry Gou has pushed for the Sharp deal to tap the Japanese firm's panel manufacturing expertise. As part of the original agreement, Gou took a stake in a Sharp LCD plant in Japan, saying the facility's advanced technology was better than Samsung's.

For Sharp - whose bankers are said to be keen to drive a deeper restructuring - the tie-up with Hon Hai would help it utilize idle production capacity.

An analyst at a Japanese brokerage, who didn't want to be named, said it was difficult to judge whether the 550 yen price was expensive as there had been little detail in the March agreement. "Hon Hai can justify a higher price if it gets concessions elsewhere, such as on the price it pays for LCD panels," the analyst said. "There's more to it than the share price."

Hon Hai shares have jumped more than 15 percent since hitting an 8-month low last Friday. The stock was up 4.1 percent on Thursday at T$90.90, while the broader market .TWII was up 1.4 percent. In Tokyo, Sharp shares last traded 1.1 percent higher at 191 yen.

(Reporting by Clare Jim in TAIPEI and Tim Kelly in TOKYO; Editing by Ian Geoghegan)

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