Japanese electronics manufacturer, Sharp, has endured a difficult time in recent years – the company has the embarrassment of being bailed out twice by supporting banks since 2012. The company builds a number of different products but the portfolio includes the display screens used by several big name smartphone manufacturers including Apple. Despite high growth, the smartphone market is very competitive with many businesses building devices at lower and lower prices: unfortunately, Sharp's technology is towards the more expensive end of the market and despite the business dropping prices in order to compete with cheaper manufacturers, it has still struggled. We've recently reported how an offer from Taiwan's Foxconn Technology Group excited stockholders, as their offer of around $5.5 billion was around double that of the Japanese state-backed investment fund, the Innovation Network Corporation of Japan, to prop up the business. We have now seen a rumor that Foxconn's Chief Executive Officer, Terry Gou, is meeting Sharp's senior executives in Osaka. The stock has continued to move upwards, gaining around 10% in early morning trade and putting the two day gain to close to 30%. Terry is planning to brief the media in Osaka at 1500 hours Japanese time.
Despite the significantly more generous offer from Foxconn over the Japanese state fund, it is still surprising that Sharp's executives – and shareholders – are so enthuiastic about the Foxconn offer. The reason why this is interesting and unusual is simply about foreign investment and ownership of local (Japanese) companies not being something that is generally accepted. National pride counts for a lot, but perhaps not $5.5 billion worth. Foxconn's offer does not involve replacing Sharp's management team, which is a less commonplace move in big business: usually, when a company is purchased by another because it is struggling, senior management are seen to be a part of the cause for the businesses' underperformance and are often quickly replaced. However, in Foxconn's case, it appears that they wish to keep the existing management team.
Foxconn's takeover could be very good news for Sharp as it should increase the opportunities for the business to sell LCD panels. Foxconn is the largest third party manufacturer in the world and like Sharp, also works with Apple and some of the biggest names in the mobile electronics world. For Foxconn, it would increase their portfolio of component suppliers as well as a premium brand. However, the politics may well end up being more important than the businesses concerned. This is an interesting development and we will keep our readers informed.