Sharp to get loan extension, more time for Foxconn deal

Tokyo / Bloomberg

Sharp Corp.’s banks are ready to push back the deadline for most of the company’s 510 billion yen ($4.5 billion) in loans and credit lines beyond March 31, people with knowledge of the matter said, giving the electronics maker more time to reach a renegotiated deal to be acquired by Foxconn Technology Group.
The extension may be as long as a month, said the people, who asked not to be identified as the decision hasn’t been publicly announced. Foxconn Chairman Terry Gou agreed a month ago to buy Sharp for more than 600 billion yen, but has held off on signing a final agreement while his advisers scrutinize the company’s finances.
While the wrangling has raised the risk of the deal falling apart, extra time from Sharp’s lenders will reduce the likelihood it will miss loan payments and face a dire situation, such as liquidation. Foxconn is seeking to cut the amount it will pay for equity in Sharp to about 389 billion yen, one person said. The Taiwanese company will probably still pay about 100 billion yen for preferred shares that the banks own, though the payment may be delayed, the person said. Sharp, along with the banks, is aiming for its directors to endorse a final proposal by March 31, one person said, although the board could meet for a vote earlier if a deal is presented. At the same time, an extension by the banks would give Sharp more time to negotiate a final agreement in April.
Toyodo Uemura, a spokesman for Tokyo-based Sharp, Mizuho Financial Group spokeswoman Masako Shiono and Taiki Kitaura, a spokesman for Mitsubishi UFJ Financial Group, declined to comment. Foxconn didn’t respond to an e-mailed request for comment.
Sharp and Foxconn are set to approve the revised bailout plan at their board meetings on March 30 and sign the acquisition agreement the following day, Nikkei reported on Saturday.
Foxconn will put down a 100 billion yen deposit upon signing the agreement, while cutting the amount it will pay for Sharp’s equity by 100 billion yen, according to Nikkei.
Foxconn also plans to help Sharp pay back the 510 billion yen in loans at an interest rate no higher than 0.6 percent and push back the timing to buy preferred shares owned by Mizuho and Mitsubishi UFJ’s lending units by three years, Nikkei said, citing unidentified sources. The banks have also agreed to give Sharp a new credit line of 300 billion yen, according to the newspaper. Yoshifumi Seki, a spokesman for Sharp, declined to comment on the report.

Moving Target

Foxconn, which includes Hon Hai Precision Industry Co., and Sharp have said they are working toward a final agreement. It has been a month since Sharp’s board backed Foxconn’s bailout over a competing offer from Innovation Network Corp. of Japan. Since then, Gou has put the brakes on the deal while he seeks more clarity on Sharp’s performance in the current quarter, people familiar with the matter have said.

The Yomiuri newspaper and Jiji first reported that Foxconn is seeking to pay a lower price for equity in Sharp.

A reduction in the value of Foxconn’s offer would put it closer to the bid from INCJ. The Japanese government-backed investment fund had offered about 300 billion yen for Sharp, all of which would have been put into the company through the purchase of additional shares. Sharp hasn’t gone back to INCJ to seek another bid, the people said.

Toshimitsu Irie, a spokesman for INCJ, declined to comment.

Sharp said Friday its annual earnings probably missed forecasts on a deterioration of demand in China. The company had said it would have operating profit of 10 billion yen in the financial year ending this month, while the average of analyst estimates is for a loss of 23.9 billion yen.