TOKYO Taiwan's Foxconn aims to lower its offer for Japan's Sharp Corp (6753.T) by at least around 100 billion yen ($893 million) to account for likely worse than expected annual earnings at the loss-making electronics firm and for newly revealed risks, two sources said on Tuesday.
Sharp late last month said it would issue around $4.4 billion worth of new shares to give Foxconn, formally known as Hon Hai Precision Industry Co (2317.TW), a two-thirds stake. The investment in Sharp's equity is part of a deal estimated to be worth $5.8 billion.
But the Taiwanese company put its takeover bid on hold at the eleventh hour after the Japanese company revealed previously undisclosed potential liabilities.
It also demanded more information about Sharp's recent business. Sources familiar with the situation said Sharp was likely to book an operating loss in the tens of billions of yen for the fiscal year ending this month, rather than the 10 billion yen profit it had previously forecast.
Sharp pushed back against an earlier, bigger cut of around 200 billion yen proposed by Foxconn, but was is in no position to walk away from the Taiwanese company as it was desperate to secure funds, they said.
Both Foxconn and Sharp declined to comment.
Once a leader in high-end displays for smartphones and TVs, Sharp has struggled as it failed to innovate enough in display technology to fend off pricing pressure from Asian rivals. Two bank bailouts since 2012 did little to help turn its business around.
In choosing to negotiate with Foxconn, Sharp turned down a rival offer by state-backed Innovation Network Corp of Japan (INCJ), at one time seen as the stronger bidder because of government involvement.
INCJ was no longer interested in Sharp and recently dissolved a group which had focused on a possible deal, sources said, leaving little option for Sharp but to negotiate with Foxconn.
MEMORIES OF 2012
The late wrangling revives memories of a breakdown in talks over a capital alliance four years ago. Foxconn agreed in 2012 to take a stake in Sharp at 550 yen a share, but walked away after Sharp warned of losses.
The sources said Sharp officials still expected some kind of agreement, although an official deal would require the approvals of both companies' boards.
Foxconn is now considering paying less for Sharp stock compared to the earlier planned 118 yen per share, but the Taiwanese iPhone assembler continues to pursue a two-thirds stake in Sharp, the sources said.
The two companies are still aiming to finalize the deal by the end of this month, they said. Foxconn is also negotiating with Sharp's main creditors to trim the purchase of about half of the preferred shares owned by the banks, worth 200 billion yen in total, or offer a lower price for these shares, the sources added.
The banks are also ready to offer additional financial support to Sharp, including extending the March-end deadline and lowering the interest rate on billions of dollars in loans extended to the beleaguered Japanese electronics giant, they said.
The core banking units of Mitsubishi UFJ Financial Group Inc (8306.T) and Mizuho Financial Group Inc (8411.T) have already extended the vast majority of Sharp's 510 billion yen in syndicated loans which are due at the end of the month.
(Reporting by Taro Fuse; Additional reporting by Makiko Yamazaki, and JR Wu in TAIPEI; Editing by Shri Navaratnam and Muralikumar Anantharaman)