Foxconn has put its takeover of Sharp on hold after discovering previously undisclosed liabilities, sources said, throwing the acquisition in doubt and sending shares of the Japanese electronics maker tumbling.
Loss-making Sharp yesterday announced it had agreed to be bought by Foxconn, a contract manufacturing firm formally known as Hon Hai Precision Industry Co and major Apple supplier.
Just hours later, Foxconn said it would not sign the deal until it had clarified some "new material information" from Sharp. It did not elaborate.
Shares slid 14 percent this morning, adding to a drop of 14 percent a day earlier as the planned share dilution looked larger than expected.
"That puts the entire deal in jeopardy," Jefferies analyst Atul Goyal said in a note to clients.
"This is especially so given the dramatic back and forth that happened between Sharp and Foxconn in 2012, when Foxconn agreed to acquire a stake in Sharp but then later walked away."
Two sources with direct knowledge of the matter said the Japanese group had contingent liabilities that amounted to "hundreds of billions of yen."
The sources did not elaborate on the nature of the liabilities or the exact amount.
A spokesman for Foxconn declined to comment on the issue. Sharp also declined to comment.
The 11th hour delay jeopardises a deal that would have marked the conclusion to five years of courting by Foxconn founder and billionaire Terry Gou and the opening up of Japan's insular tech sector to foreign investment.
The loss-making display maker said it would issue around US$4.4 billion (A$6 billion) worth of new shares to give Foxconn a two-thirds stake. Foxconn's investment is set to total more than ¥650 billion, a separate source familiar with the matter said.
If a deal does go through, it would boost Foxconn's position as Apple's main contract manufacturer and enable Sharp to start mass-producing organic light-emitting diode (OLED) screens by 2018, around the time Apple is expected to adopt the next-generation displays for its iPhones.
But efforts to patch up the deal could be impeded by lingering distrust over the collapse of the 2012 deal to form capital ties. That distrust was one reason Sharp officials, until recently, preferred a lower offer by the state-backed Innovation Network Corp of Japan.