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Sharp shares soar on Samsung tie-up reports

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(Globalpost/GlobalPost)

Shares in Sharp soared Wednesday as its board reportedly approved a deal making South Korean rival Samsung its biggest foreign shareholder, indicating the fading fortunes of Japan's electronics giants.

The Japanese firm behind Aquos-brand electronics had jumped 17.06 percent to 350 yen earlier in the day after the leading Nikkei business daily and other media reported the deal was in the works.

In late afternoon trade it was at 341 yen.

The reports said the deal would help Samsung boost its access to screens used in its popular smartphones and tablet computers -- a sector where Sharp's technology is a world leader.

Sharp would sell Samsung new shares worth about 10 billion yen ($108 million), giving it a three-percent stake and making it the Japanese firm's biggest overseas shareholder, the reports said.

Sharp, meanwhile, would use the funds to help shore up its bleeding bottom line,the reports said.

Shortly after lunch, Kyodo news agency Sharp's board had given the green light to the deal, although an official announcement is expected later in the day.

If confirmed, the decision to accept a capital injection from a foreign firm -- a rare move for a Japanese company -- would mark a major comedown for both the company and Japan's manufacturers, said Hiroshi Sakai, chief economist with SMBC Friend Research Centre.

"For Japan, it is symbolic and shocking news as Sharp, which used to be a frontrunner in the panel industry, is struggling while its rival Samsung has raced past it," he said.

He added that the news "should not be any surprise" given Samsung's leading position in the global electronics market.

However, the deal would not solve all of Sharp's woes, he added, as the struggling firm cuts jobs and overhauls its business after saying in February that its loss in the nine months to December had doubled to about $4.6 billion.

Rival Sony, meanwhile, is selling off its headquarters in Manhattan and a major building in Tokyo to raise cash, while money-losing Panasonic is undergoing a similar painful restructuring.

Given the sector's struggles, deals between Japanese and foreign rivals are likely to increase, Sakai said.

"Many other Japanese electronics makers are struggling to survive. But they still have attractive technologies and some foreign rivals are quite interested in them," he said.

Japan's electronics giants have suffered myriad problems including a strong yen, weak demand in key export markets, fierce competition especially in their struggling TV divisions and strategic mistakes that ruined their finances.

Sharp -- which last year warned over its own survival and put up its Osaka headquarters as collateral to clinch crucial bank loans -- has been hammered by lower-cost rivals in its liquid-crystal display business.

The reported Samsung-Sharp deal gives the South Korean company more access to the market without investing in new production plants, analysts said.

Investors cheered the reports on expectations it would usher in higher output at Sharp's flat-panel manufacturing plants, said Toshiyuki Kanayama, senior market analyst at Monex Inc.

"Investors are expecting that Samsung's significant sales force would contribute to Sharp plants' operation rates, as demand from Apple is declining," he said.

Sharp expects to close its fiscal year to March with a net loss of 450 billion yen, but has backed off earlier warnings over its ability to survive.

Last month, reports said an expected capital injection from Taiwan's Hon Hai Precision, which makes Apple gadgets in China, had been shelved.

US-based chipmaker Qualcomm invested 4.94 billion yen in Sharp in December, obtaining 2.64 percent stake with Sharp shares priced at 164 yen each, about half the market price Wednesday.

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http://www.globalpost.com/dispatch/news/afp/130306/sharp-shares-soar-samsung-tie-reports