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Gou a 'victim' of ruse in union of Hon Hai, Sharp

TAIPEI, Taiwan -- Hon Hai Precision Industries Co. Chairman Terry Gou yesterday claimed to be the victim of a ruse involving failed negotiations over acquiring a 10-percent stake in Sharp, according to a Japanese report.

An article featuring an exclusive interview with Gou was published yesterday by Japan's Toyo Keizai (周刊東洋經濟) magazine. In it, Gou claimed that he had been swindled by the Sharp management team, and that despite meeting all requirements on his end, the deal did not proceed as agreed. While Hon Hai's plans to acquire a 9.9-percent stake in Sharp were not finalized, Gou had gained a 50 percent stake in Sharp's Sakai-based 10th-generation panel production facility via a personal investment.

According to Gou, operations at Sharp's Sakai plant improved markedly following his investment, with average capacity utilization surging to the 80-percent benchmark, garnering revenues of 210.9 billion yen and an after-tax income of about 6 billion yen on operating profits of 7.2 percent. This figure exceeds averages found among China- and South Korea-based competitors in the sector for last year. Gou stated that success in the Sakai plant had instilled confidence in further collaborative endeavors with Sharp.

In the Toyo Keizai report, Gou explained that he is impressed by Sharp's lead in display panel technology and manufacturing capability, and that the company remains Hon Hai's most sought-after partner.

Gou stated that since 2012, he has met with all three successive executive leaders at Sharp, adding that relations remains amicable with current Sharp Chief Officer Kozo Takahashi.

Arduous Path Towards Union Since 2012

Negotiations between the two companies date back to March 2012, with Hon Hai announcing its intent to acquire a 9.9-percent stake in Sharp for the price of 66.905 billion yen, during a time in which Sharp share prices were fluctuating around 550 yen. Conclusion of the deal was halted in August of 2012, when Hon Hai announced that the acquisition deal would no longer proceed by the terms established earlier in March as Sharp shares tumbled to around 199 yen. Gou stated in the report that he had requested an investigation into the company's tumbling share price, however the process was met with complications following a series of changes within Sharp's management team after chief officers retired.

In contrast to the difficulties experienced by Hon Hai, in December of 2012 Qualcomm had acquired a 5-percent stake in Sharp for 9.9 billion yen, while Samsung acquired a 3-percent stake in March in 2013, paying 10.4 billion yen.

Meanwhile, according to a Hon Hai announcement in March 2013, the two companies had agreed on a five-year timetable to finalize negotiations, with nine months remaining until the final deadline of March 26, 2015.

Industry experts commented that conditions have improved since 2012, including Sharp's growing desire to tap into the vast China markets amid growing tariff barriers, the stellar growth results recorded after Gou's involvement in the Sakai facility and that the two companies may likely seal the deal in the nine remaining months. Gou represents a valuable ally in Sharp's bid to expand production capacity outside of Japan, said industry commentators.

"If Takahashi agrees to relinquish a 9.9-percent stake at current market prices, I am willing to seal the deal on the following day," said Gou in the report. As of yesterday, Sharp shares are trading around 310 yen, about 43 percent lower than Hon Hai's promised 550-yen acquisition price in 2012.

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