QUALCOMM, Inc. (NASDAQ:QCOM) has agreed to acquire a stake in the struggling Japanese TV maker, Sharp Corporation (PINK:SHCAY), by investing as much as $120 million. The investment will make Qualcomm the biggest shareholder, with a 2.6 percent stake in Sharp, based on its 191 billion yen market value yesterday.
As per the terms of the deal, QUALCOMM, Inc. (NASDAQ:QCOM), through its Pixtronix subsidiary, will work with Sharp. In the future, two companies could also work together on the fabrication of chipsets. The US Company will initially invest 4.93 billion yen ($59.91 million) by the end of the year in a private placement of stock at 164 yen per share, 10 yen less than Tuesday's closing price. The timing and amount of the remaining investment will be decided later, depending on the earnings report of Sharp for the second half of the business year ending March 31st.
“With this agreement Sharp Corporation (PINK:SHCAY) will accelerate its strategy for growth in small-to medium-sized LCDs," the Japanese company said.
The deal with the chipmaker will boost Sharp’s shareholder equity ratio, which at the end of September stood at 9.9 percent, half the 20 percent level usually considered the minimum for financial stability. The LCD maker posted an operating loss of 168 billion yen for the six months ending September 30. For the full year, the company expects a loss of 155 billion yen.
In an earlier agreement, Sharp Corporation (PINK:SHCAY) expected to sell a stake in its advanced television LCD panel plant in Sakai, western Japan, to Hon Hai Precision Industry Co. The deal was not completed as losses mounted at the maker of Aquos TVs. Talks to renegotiate the investment have since stalled, but there was news that Hon Hai may acquire some of Sharp's overseas TV assembly plants. The Sankei newspaper reported on Sunday that Hon Hai plans to purchase three factories in China, Malaysia, and Mexico for $667 million. Sharp has also been in talks with the semiconductor maker Intel Corporation (NASDAQ:INTC) and technology corporation Dell Inc. (NASDAQ:DELL) for a stake sale.
“This investment is good news for Sharp,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “However, it won’t have sufficient impact to improve the company’s situation dramatically. It’s only symbolic”.
The investment by QUALCOMM, Inc. (NASDAQ:QCOM) will surely reassure worried Sharp’s investors, including Mitsubishi UFJ Financial Group Inc (NYSE:MTU) and Mizuho Financial Group Inc. (NYSE:MFG), about the prospects of the debt-laden company that earlier this year averted failure with a $4.4 billion bank bailout. Sharp's shares gained 1.2 percent to 174 yen in Tokyo after the deal was reported. Sharp shares have declined 74 percent this year, making it the world’s second-worst performing major stock.