Sharp's Hon Hai bail out stalled

Japan’s Sharp, which was hoping that a deal with Hon Hai would help pull its nadgers out of the fire, has announced that the deal has stalled.

Apparently Hon Hai was not content with becoming the company’s largest shareholder. It also wanted a management role in return for its capital.

Hon Hai was expected to buy a 9.9 percent stake in Sharp during a visit to Japan by Hon Hai’s chairman, Terry Gou, in August. But Gou left early without seeing Sharp executives.

Sharp told Reuters that there had been no development regarding capital from their side, according to a Sharp executive.

Gou said he would only buy a stake in Sharp if it agreed to give him a say in its business strategy.

The move puts Sharp in a tricky position. It is rushing around trying to pay its debts. However, it has indicated it wants to discuss further cooperation with Hon Hai, including in its small liquid crystal display business. But that will only happen after the two companies have agreed to the investment.

Sharp’s banks are assuming that Hon Hai is history. Its main lenders Mizuho Financial Group Inc and Mitsubishi UFJ Financial Group are aiming to arrange financing of $3.87 billion. Hon Hai’s expected capital injection has not been factored in.

However, to get their their backing, Sharp has mortgaged nearly all of its domestic offices and factories.

On Tuesday it said that it would trim salaries of its managers by a tenth for a year and seek an across-the-board wage cut for other workers. This is in addition to plans to slash 5,000 jobs, or about a tenth of its global workforce.