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Foxconn to acquire Sharp Corporation for $5.6 billion

Fri 5 Feb 2016

Foxconn, one of the world’s largest electronics components manufacturers, is reportedly finalizing a deal to acquire Sharp Corporation by the end of the month. The acquisition, which will cost Foxconn approximately $5.6 billion, is Foxconn’s largest acquisition to date, and will represent the largest foreign investment in Japan’s historically insular tech market.

Foxconn CEO Terry Gou met with the board of Sharp today, only one day after Sharp’s decision to focus on the takeover bid from Foxconn rather than a Japanese government-backed fund. Demand for Sharp’s LCD technology has declined drastically over the last several quarters, leading to several major bailouts for the company, including a $1.7 billion rescue in May of 2015. Financial assistance notwithstanding, the Osaka-based company was unable to recover, and in October Sharp was advised by its main banks to look at taking on a partner by the end of the fiscal year, occurring March 2016.

With the acquisition Foxconn, already the largest contract supplier of Apple’s iPad and iPhone devices, will gain access to Sharp’s advanced technology at a crucial juncture, when Apple may very well be looking to advance to more flexible screens in their mobile devices to help drive flagging sales.

Foxconn also supplies electronic components to Microsoft, Amazon and Sony. However, Sharp has been losing money for years, even with the help of substantial financial bailouts. A previous strategic alliance between Sharp and Foxconn broke down in 2012, but the relationship has apparently been improved through the companies’ joint management of a Japanese plant.

Foxconn continues to battle the media, with reports of bad working conditions, riots, and a rash of suicides at the Taiwanese company’s manufacturing plants. These reports, which have circulated since 2010, prompted Foxconn to make public pledges to improve the salaries and working conditions for its employees. In August 2015 Foxconn announced that it would be investing $5 billion to set up manufacturing in India, with up to 12 working facilities and 1 million employees by 2020.

Many suspect that moving manufacturing plants from China to India will help mitigate the rising wages and increasing labor disputes in China, as well as creating distance from the bad press of the last few years. Continuing their international diversification with their expensive foray into Japan’s technology market by way of the Sharp acquisition is a calculated risk, but one that looks to Foxconn’s future.

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