The struggling Sharp Corp has found a good stash of cash from Qualcomm Inc. The big chipmaker company will become Sharp’s biggest shareholder following confirmation of talks that both companies are working out a deal that would boost Sharp’s financial concerns at ease.
The two technology companies are in negotiations over Qualcomm’s interest to invest 10 billion yen ($121.5 million) in Sharp shares. They are also coming up with a deal to develop together a power-efficient IGZO displays, according to sources of Reuters.
After last Monday’s closing price, the deal would give Qualcomm about 5 percent stake after dilution. The stock of Sharp dived sharply in value since January of this year, losing almost about 75% of its value. The potential partnership, first reported by Nikkei business daily, created interest for Sharp’s share values, which rose as high as 2.9 percent the following day.
Both companies declined to comment on the news.
It is rumored that Sharp may announce the partnership as early as Tuesday. The new terms would mean the Japanese company will receive about 5 billion yen through private placements of shares towards the end of the year. The rest of the remaining investment will follow once production starts again.
Months ago, the Taiwanese Hon Hai Precision Industry Co Ltd would have been Sharp’s biggest shareholder, but the negotiations did not push through because of some disagreements on how to sell a stake in Sharp’s advanced television LCD factory in western Japan. The disagreement came mainly from Sharp’s losses as well as mounting debt that threatened to put the company out of business. The situation forced it to ask for a bailout of $4.4 billion from banks in Japan.
Waves of negotiations with Hon Hai continued without much success, although there are rumors that the Taiwanese firm may buy some of Sharp’s assembly plants outside Japan. Japanese paper Sankei reported of a possible buyout of three assembly plants in Mexico, Malaysia, and China for $667 million.
According to the report by Reuters, the investment boost by Qualcomm will help improve Sharp’s shareholder equity ratio. The acceptable level for financial stability is 20 percent but the company’s equity ratio until the end of September was only 9.9 percent.
Last October, Sharp doubled its forecast for the entire year net loss to 450 billion yen ($5.47 billion) after it secured a $1.1 billion restructuring charge in July-September quarter.