June 29, 2018 / 12:13 AM / 5 months ago

Japan's Sharp ditches $2 billion share issue plan after investor backlash

TOKYO (Reuters) - Japan’s Sharp Corp scrapped a plan to issue up to $2 billion in new shares, changing its mind in a matter of weeks after the initial announcement prompted investors to dump its shares on fears of earnings per share dilution.

FILE PHOTO: A logo of Sharp Corp is pictured at the CEATEC JAPAN 2017 (Combined Exhibition of Advanced Technologies) at the Makuhari Messe in Chiba, Japan, October 2, 2017. REUTERS/Toru Hanai/File Photo

In a statement on Friday, Sharp cited worries about trade frictions between the United States and China. “Due to increasing market uncertainties, the company decided that carrying on with the plan to issue new shares would not yield maximum benefit for shareholders,” it said.

Sharp shares rose 17 percent by early afternoon as investors cheered the about-face. The plans to issue new shares, announced on June 5, had sparked a sell-off on the market as they would have eroded Sharp’s earnings per share by about 20 percent.

“The shares fell after the announcement, so they decided to quit. It’s that simple,” said Masayuki Otani, chief market analyst at Securities Japan.

“To announce a new share issue, and then say ‘we changed our mind’ because the shares fell... that’s not common but not unprecedented.”

Sharp had previously said it would use funds from the new shares to buy back preferred shares that were issued to banks in return for a financial bailout in 2015. The plan was finalised just a week ago.

The company had tried to persuade investors that the issuance would benefit them in the long run, saying dilution would be more if the preferred shares were converted into regular stock.

Sharp’s shares sank 21 percent since the June 5 announcement until Friday’s open, compared with a 1 percent fall in the broader Tokyo stock market over the same period.

The company said it would continue to discuss with the banks to dissolve the preferred shares.

Sharp has been showing signs of recovery under Taiwan’s Foxconn, the world’s biggest contract manufacturer which is formally known as Hon Hai Precision Industry Co Ltd.

It recently posted its first annual net profit in four years, helped in large part by cost cuts but also by Foxconn’s sales network in China. It has also said it will buy Toshiba Corp’s personal computer business for $36 million.

Some analysts said the Osaka-based electronics maker had become more decisive and responsive to shareholders since it was taken over by Foxconn two years ago.

“My impression is that Sharp has really changed as a company,” said Hajime Nakajima, chief strategist at investment advisory firm AsLink, adding the management’s decision on the matter was a speedy one.

Reporting by Makiko Yamazaki; Additional reporting by Chang-Ran Kim, Shinichi Saoshiro and Yoshiyuki Osada; Writing by Ritsuko Ando; Editing by Richard Pullin and Muralikumar Anantharaman

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