Two important Apple suppliers in Asia have agreed to join forces in a multibillion-dollar deal.
Taiwan’s Foxconn is going to take over the struggling Japanese electronics firm Sharp by buying shares worth 589 billion yen ($5.25 billion), according to a statement from Sharp on Thursday.
Foxconn, a huge contract manufacturer, is one of Apple’s biggest suppliers, playing a key role in assembling iPhones.
By buying Sharp, it will get its hands on the Japanese company’s display technology that Apple uses in some of its devices. That could bring it more leverage with the U.S. technology giant.
The deal will also give it access to consumer markets through a recognized brand, analysts say.
But Foxconn is paying a big chunk of change for a loss-making company.
Sharp, which traces its roots back to the early 20th century, has been mired in difficulties in recent years. It’s been trying to restructure its troubled liquid crystal display (LCD) business after heavy investment in big TV sets failed to pay off.
For the last nine months of 2015, Sharp posted a net loss of 108 billion yen (about $960 million).
The acquisition is a gamble for Foxconn CEO Terry Gou, who will face the challenge of turning around the Japanese company’s operations. The company did not respond to requests for comment.
Analysts at the investment and research firm Bernstein say they don’t think the deal will be a good one for Foxconn shareholders because the company is paying more than Sharp is worth.
Investors in Sharp were also unimpressed by the plan, which will involve the Japanese company issuing more than 3 billion new shares at a significant discount to the stock’s current price on the Tokyo exchange.
Sharp shares, which had gained more than 30% in recent weeks on speculation over the takeover, nosedived 14% after details of the deal were announced. Issuing the new shares will require shareholder approval, the company said.
If it goes through, it would be one of the biggest foreign takeovers of a Japanese corporation.
Sharp also held talks with Innovation Network Corporation of Japan over a possible deal, but Foxconn managed to beat out the rival bid.
— Junko Ogura contributed to this report.