Investors dumped Sharp Corp shares as the abrupt departure of Hon Hai Precision Industry‘s chairman from Japan fuelled uncertainty over a tie-up expected to help secure the long-term viability of the Japanese LCD TV panel maker.
Hon Hai Chairman Terry Gou, who was visiting the liquid crystal display plant in western Japan that he owns jointly with Sharp, skipped a planned media briefing at the factory on Thursday and returned to Taiwan. The unexpected departure scotched expectations that an agreement for Hon Hai to buy a 9.9 percent stake in Sharp would emerge on Friday.
“Investors are just very uncertain, it’s very opaque,” said Kenichi Hirano, operating officer at Tachibana Securities.
“Sometimes these negotiations break down, and maybe that’s Hon Hai strategy,” said Hirano, adding that he expects the firms to eventually reach agreement.
As Sharp’s shares tumbled 11 percent, the biggest drop in two weeks, the Japanese company played down the sudden departure of the mercurial Gou, who founded Hon Hai four decades ago as a maker of plastic parts for TVs.
The Taiwanese company’s rapid rise as a major assembler of TVs, computers and phones including those of iPhone maker Apple Inc has made Gou one of Taiwan’s richest people with an estimated worth of around $5 billion.
The two companies will resume talks as early as Friday, said a spokeswoman for Sharp, Miyuki Nakayama.
On Gou’s departure, she added: “That’s nothing to do with the talks. It was his schedule.”
Short selling in Sharp is on the rise, indicating greater investor pessimism. According to data provider Markit, 91.93 percent of the stock that is available to be borrowed had been out on loan as of August 29, up from a near three-week low of 87.63 percent on August 27.
HON HAI INVESTMENT
The Taiwanese company had agreed to pay 67 billion yen ($854 million), or 550 yen a share, for 9.9 percent of Sharp in March, but reopened talks in August to seek a lower price after the LCD TV pioneer’s stock slumped below 200 yen as mounting losses put a question mark over its future.
Gou has said that whether he takes a stake in Sharp, which takes its name from the ever-sharp mechanical pencil it invented a century ago, will depend on whether the Japanese firm will take his advice on how to restore profits.
An example of how cooperation might work is underway at the Sakai plant that Gou visited on Thursday.
The plant makes credit-card thin substrates of liquid crystal sandwiched between sheets of glass wider and longer than a king-sized bed that can be cut into eight 60-inch TV screens with little waste. Being largely automated, labor represents a small proportion of overall costs.
It offers Hon Hai a profit margin-boosting edge as the market for bigger TVs expands. Tapping into Hon Hai’s procurement muscle and know-how in cost control will promise Sharp an advantage in the market place as it battles South Korea’s Samsung and LG Electronics.
“Apple is set to launch its smart TV next year and Apple needs Hon Hai to secure advanced TV panel technology,” said Simon Liu, vice president at Yuanta Financial’s fund unit, which owns Hon Hai shares.
Hon Hai’s senior manager at the plant, C.C. Lin, yesterday told Reuters that the partners may spend over $1 billion to boost capacity from next year as demand from Hon Hai’s customers increases.
The Taiwanese company is also considering buying Sharp’s TV assembly plants in China and Mexico, and may list the Sakai plant on Taiwan’s stock exchange in two or three years, Lin added.
Hon Hai shares were down 0.9 percent in Taipei in a broader market that rose 0.14 percent.
Short selling in Hon Hai also increased, with 8.50 percent of its stock that is available to be borrowed out on loan as of August 29, up from 8 percent on August 28.
“It seems the talks between Terry Gou and Sharp’s management didn’t yield good results. Any agreement would probably have to wait until year-end,” Yuanta Financial’s Liu said.