After months of negotiating, Foxconn has agreed to acquire Sharp for ¥389bn (£2.5bn) despite Sharp’s debt of over 300 billion yen (£1.85bn). Foxconn, a Taiwanese company, will acquire a controlling stake of 66 percent of Japanese Sharp in what will be the largest-ever foreign takeover of a Japanese electronics firm.
Foxconn is the world’s largest electronics contract manufacturer and produces over 80% of all iPhones. Sharp is a century-old company known for its manufacturing of screens for electronic devices. Sharp has been struggling as of late and recently reported it is expecting a loss of ¥200bn (£1.2bn) for its 2015 fiscal year.
The two companies almost made a merger deal of ¥489bn (£3bn) last month until Sharp revealed its staggering amount of liabilities. The deal was renegotiated to the lower figure to account for those debts.
Foxconn has long been a partner with Apple, Inc., but Apple looks to be trying to diversify its supply chain by giving some production contracts to manufacturers other than Foxconn. Economists are doubtful that acquiring the failing Sharp company is a wise move on Foxconn’s part. Foxconn, however, seems confident that having control over the popular Sharp screens will make it a more attractive partner to Apple.
This is not the first time that Foxconn has attempted to control more of the electronics supply chain. In 2010, Foxconn took over another screen maker, Taiwanese Chimei Innolux for close to £7bn. That acquisition has failed to produce the efficiencies and profitability they had hoped for.
In acquiring Sharp, Foxconn has picked up a screen-making operation that has long been less profitable and costlier than its Chinese rivals. It will take some time before we can see if this risk will pay off for Foxconn, or if it will only prove as a distraction while Foxconn struggles to integrate the new acquisition and turn the failing company around.