With financing options dwindling, Japan’s Sharp Corp. is reaching out to unconventional sources of capital as its search for cash gets more desperate.
- Most recently, it has asked Lixil Group Corp. –a maker of kitchen, toilet and bathroom equipment–for an investment of about ¥10 billion, one person familiar with the matter said on Friday. The electronics maker has also approached woodworking tool and lawnmower maker Makita Corp. and car parts maker Denso Corp. , according to media reports. Japan’s Nikkei newspaper also reported Sharp’s talks with Lixil. The two companies formed a joint venture in 2011 to develop and sell power-efficient equipment for installation in homes, such as all-in-one solar panel roofs and LED lights.
Traditionally, Japanese companies take care of each other’s money problems, often coming to the aid of other domestic industry peers. Sharp bought a more than 14% stake in Pioneer Corp. to help it shore its finances in 2007 (it sold those shares off amid its own troubles), and when chipmaker Renesas Technology Corp. was in need of a bailout last December Panasonic Corp. , which also has a semiconductor business, and other domestic partners chipped in.
It’s been a humbling year for Sharp, once one of the world’s largest LCD makers. Battered by mammoth losses, Sharp has slashed staff and licensed its best technology to Chinese manufacturers. It has gone cap in hand to potential partners, selling stakes in itself to arch-rival Samsung Electronics Co. , and given its banks managerial say in exchange for a lifeline. There is a concern that the loss-ridden firm may face a slow death through marginalization, however, because it still lacks the cash to invest in growth areas.
“Sharp has exhausted all partnerships that could give birth to competitive advantages in its products,” Yoshihisa Toyosaki, analyst at Tokyo-based IT consultancy firm Architect Grand Design, said. “Now, they just want the cash.”
For months, the maker of displays used in Apple Inc.’s iPads has been looking into various ways to raise funds to survive.
Late last year, Sharp and its bankers met with a U.S. private equity fund, which offered to buy a minority stake and help turn around the electronics maker, people familiar with the talks said. But the fund and the banks which control Sharp’s fate couldn’t reach an agreement, according to two people familiar with the talks.
One person involved in the negotiation said the fund and banks disagreed on whether the funds could gain access to Sharp’s assets earmarked to the lenders as loan collateral. The other person said collateral was not the main issue in their talks, adding that a private equity fund is supposed to take more risks than a bank.
Bankers also believe Sharp–for all its troubles–would be able to tap equity markets for about ¥100 billion, or $1 billion. One foreign banker not involved in talks of Sharp’ offering said, the company can issue new shares “even if the equity story is really bad.” Demand is expected to be strong among hedge funds, which have shorted Sharp and need shares to cover those short positions, the banker said. The Wall Street Journal had reported earlier that Sharp was considering an equity offering later this year.
“Nothing has been decided,” Sharp spokeswoman Miyuki Nakayama said regarding the possibility of an equity offering and of an investment from Lixil or other companies.
Sharp had a market capitalization of ¥555 billion as of Friday. The stock has risen 54% this calendar year on a surge in markets that lifted the benchmark Nikkei average by 40% and prompted a flurry of new share issues by companies such as Denso, Daiwa House, and Olympus over the last month.
Sharp, a pioneer in LCD TVs and solar power panels, has been unable to maintain its dominance in both fields as more nimble rivals took market share with aggressive marketing and pricing. Bogged down with huge advanced liquid crystal display plants in costly Japan, it logged a net annual loss of ¥545 billion in the year ended in March. It is expected to log a quarterly net loss of ¥13 billion when it reports its earnings results for April-June on August 1, according to a poll of analysts by Thomson Reuters.
In its search for funds, Sharp had expected a joint investment from Sony Corp. in its state-of-the-art Sakai plant, but Sony–struggling with its own finances–backed out of the deal. Then, it sought a tie-up with Taiwanese contract manufacturer Hon Hai Precision Industry Co. , which invested in the Sakai plant last year with an agreement to take an equity stake in Sharp too. But when more money from Hon Hai failed to materialize, Sharp turned to Samsung, which Sharp sued in 2007 for stealing its LCD technology. The Korean electronics giants acquired a 3.01% stake in Sharp in March for ¥10.4 billion. Sharp also sold a 3.53% stake in itself to U.S. chipmaker Qualcomm Inc. for a total of ¥10.8 billion over two investments with the most recent taking place at the end of June.
Originally posted @: http://blogs.wsj.com/japanrealtime/2013/07/19/sharps-cash-hunt-takes-unconventional-turn/tab/print/
Byron Shaw 