Foxconn, Midea aiming to expand in overseas markets
Two Chinese electronics manufacturers announced deals Wednesday to buy into major Japanese firms, showing their efforts to expand in overseas markets via mergers and acquisitions (M&A), experts noted.
Electronics manufacturer Hon Hai Precision Industry Co, commonly known as Foxconn Technology Group, said Wednesday it had agreed on a plan to buy a 66 percent stake in Japanese electronics giant Sharp Corp for 389 billion yen ($3.5 billion).
Foxconn said the company will pay 88 yen per share to purchase Sharp, a discount of 25 percent from its earlier offer in February. Sharp's board members had met on February 25 and agreed to sell the company for almost $6 billion, or 118 yen per share, according to media reports.
"Sharp's high liabilities, some of which were newly detected by Foxconn, resulted in the lower price," said Guo Jian, a semiconductor industry analyst with CCID Consulting Co. The current "overcapacity in the electronics industry in Japan and China" was also a factor, Guo told the Global Times on Wednesday.
The two companies are committed to restoring profitability and strengthening operations to once again make Sharp a leader in the global electronics arena, according to a statement Foxconn sent to the Global Times on Wednesday.
Sharp has been struggling in recent years, with the company recording declines in sales and income. The company's net sales declined 7.1 percent year-on-year during the nine months ended December 31, 2015, said its latest financial results published in February. And Sharp recorded a loss of 29 million yen in its operating income in the same period.
Guo noted that Foxconn can help rebuild Sharp's brand, as well as expanding its market channels.
"This will also help Foxconn win more orders from Apple and other famous smartphone manufacturers that need high-quality mobile screens," he noted.
Also on Wednesday, another Japanese electronics giant, Toshiba Corp, sold its white goods business to Chinese home appliance manufacturer Midea Group, according to a Midea filing with the Shenzhen Stock Exchange on Wednesday.
Midea said it is purchasing an 80.1 percent stake in Toshiba's home appliance business for 53.7 billion yen.
Under pressure
Japanese home appliance companies have been affected by the continuing depreciation of the yen, along with the downward pressure on the Japanese economy, Luo Qingqi, a home appliance expert and director of Pa Le Consulting Company, told the Global Times on Wednesday.
"While Japanese electronics firms are fighting for their lives, their Chinese counterparts are trying to expand, and mergers and acquisitions are the right choice," he noted.
Toshiba also reported shrinking sales and income in its recent financial report.
The company's net sales decreased by 301.6 billion yen and it recorded an operating loss of 229.5 billion yen, according to its financial results for the third quarter of the 2015 fiscal year published in February.
More mergers will happen in the household electrical appliance industry due to the meager profit margins in the industry, said Li Xiaogang, director of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences.
"It is a win-win result for both sides," he told the Global Times on Wednesday.
Li noted that Chinese firms can gain brands and technology through deals with Japanese enterprises, while the Japanese companies can gain more capital to use in developing their core businesses.
However, the technological innovation factor should not be ignored after the deals are struck, as the Japanese companies still have obvious advantages in terms of production technology and product quality, while Chinese products are more cost-effective, Li said.
