Taiwan's Foxconn has put its takeover of Japanese electronics maker Sharp on hold after becoming aware of previously undisclosed liabilities, two people with direct knowledge of the matter told Reuters on Thursday.
Loss-making Sharp (shcay) said earlier in the day that it had agreed to be bought by Foxconn, a contract manufacturing firm, in what would be the biggest takeover by a foreign company in Japan's insular technology sector.
But Foxconn said hours later, in a separate statement, that it would not sign until it had clarified terms in a "new key document" from Sharp. It did not elaborate.
One of the sources, reading from details sent by Sharp to Foxconn, said the Japanese group had contingent liabilities that amount to "hundreds of billions of yen." That matter would have to be resolved before a deal can be finalized, said the source, who spoke on the condition of anonymity as the talks are confidential.
The source did not elaborate on the nature of the liabilities or the exact amount. Reuters has not seen a copy of the letter.
A spokesman for Foxconn, which is known formally as Hon Hai Precision Industry (hnhpf), declined to comment on the issue. Sharp also declined to comment.
If the deal is signed, 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 (aapl) is expected to adopt the next-generation displays for its iPhones.
After the news of proposed deal but before Foxconn's statement, Sharp's stock tumbled to end 14% lower as the share dilution looked larger than expected, with traders noting that the deal included the issuance of a class of shares that would be convertible next year.
Sharp's possible sale comes after five years of courting by Foxconn founder and billionaire Terry Gou, who sees ownership of Sharp as a way to better compete with Asian rivals such as Samsung Electronics Co.
"Sharp has the technology to build out the components to compete with Samsung as an Apple supplier, which means that with Sharp under its umbrella Foxconn can help Apple wean itself off Samsung," said Gavin Parry, managing director of Parry International Trading, a brokerage in Hong Kong.
Thinner, Lighter, Flexible
Sharp aims to become a global supplier of OLED screens, which are thinner, lighter and more flexible than current displays. South Korea's Samsung Display and LG Display are also investing heavily in the new technology.
The century-old Japanese firm was once a highly profitable manufacturer of premium TVs and a favored screen supplier to Apple. But it has struggled in recent years as massive investments in advanced LCD plants failed to pay off amid price competition with Asian rivals, and two bank bailouts since 2012 did little to help turn its business around.
In agreeing to the deal, Sharp executives have decided to put behind them ill-feelings over the breakdown of a 2012 agreement between the two companies to form capital ties.
Both government and Sharp officials initially backed a rescue plan by state-backed Innovation Network Corp of Japan (INCJ), fearing a loss of the company's technological expertise to a foreign company. The fund had planned to merge Sharp 's screen business with Japan Display, in which the fund owns a majority stake.
The plan looked set to be another in a long series of deals between domestic rivals, propped up with the help of banks or state funds. But policymakers warmed to Foxconn's offer as a step towards bolstering foreign direct investment in Japan.