By Makiko Yamazaki
TOKYO (Reuters) - Loss-making Japanese electronics maker Sharp Corp's (T:6753)board begins a two-day meeting on Wednesday to decide if it should accept a $5.9 billion (£4.2 billion) takeover by Taiwan's Foxconn instead of an offer from a state-backed fund, sources with direct knowledge of the matter said.
A deal with Foxconn, the world's biggest assembler of Apple Inc (O:AAPL) products known formally as Hon Hai Precision Industry Co (TW:2317), would pave the way for the largest acquisition by a foreign company in Japan's insulated technology sector.
The Taiwanese firm, the world's biggest contract maker of electronic gadgets, has offered to invest 659 billion yen ($5.9 billion / £4.2 billion) in Sharp, sources have said.
That is more than double the 300 billion yen investment offered by the state-backed Innovation Network Corp of Japan (INCJ), which was previously considered the more likely suitor because it was seen as a more reliable investor with the backing of government. The fund has said it wants to merge Sharp's display business with Japan Display Inc (T:6740), in which it is the top shareholder.
Sharp earlier this month surprised markets by saying it would devote more resources to studying a deal with Foxconn.
At least four of the 13 board members favour the Foxconn offer, two of whom represent Sharp's two main lenders, according to sources familiar with recent discussions. The lenders are wary of the INCJ plan, which calls for them to cancel the preferred shares they own, they said.
It is unclear how the other board members including Chief Executive Kozo Takahashi view the competing offers.
LINGERING DOUBTS
Some sources have cited lingering doubts over Foxconn's commitment, after a breakdown in a 2012 agreement to form capital ties. In a gesture to reassure Sharp executives, Foxconn has offered to pay 100 billion yen as a cancellation fee if it does not go through with the deal, one source said.
Board members will also discuss INCJ's offer before moving to a vote on Thursday, the sources said. They declined to be identified as they were not authorised to speak with media.
Sharp declined to comment. Sharp doesn't make board meeting schedules official, a spokesman said. The company has said it would decide by the end of the month whether to accept Foxconn's offer.
A takeover by Foxconn, which assembles various electronics products such as smartphones and television sets for the likes of Apple and Sony Corp (T:6758), would vastly expand sales channels for Sharp's liquid crystal display (LCD) panels.
Teruo Asamoto, professor at Kyushu Sangyo University, said Foxconn's ample resources would also enable much-needed investment in next-generation display technology, including for OLED (organic light-emitting diode) screens which Apple is said to be adopting in its iPhone around 2018.
The two companies "would make a good match as Sharp can take advantage of Hon Hai's expertise in production efficiency to commercialize their gadgets," he said.