Defiant display

Sharp surprise sends hopeful signal about Japan

Sharp's upset sends a hopeful signal about corporate Japan. The ailing electronics firm is leaning towards a deal with Taiwan's Foxconn ahead of a state-backed bailout. Current shareholders may yet suffer. At least, though, the board seems to be taking its duties to them seriously - just as should happen in the new investor-friendly Japan.

That Foxconn has a serious chance of winning control of Sharp is something of a surprise. Its rescue proposal, which Reuters now values at 700 billion yen ($5.9 billion), appears richer. But the rival Innovation Network Corp of Japan (INCJ) enjoys a serious home advantage: it is a state-backed fund that would keep Japanese technology in Japanese hands.

That is why a sweetheart domestic deal looked on the cards - even though it would have risked undermining Prime Minister Shinzo Abe's drive to make Japan companies more focused on delivering returns for shareholders.

In contrast, a snub to the INCJ would show both that real change is afoot, and that Japan's doors aren't always closed to foreigners. That impression has been reinforced by previous deals including INCJ's 2013 purchase of Renesas, a chipmaker, which thwarted US buyout firm KKR.

There are serious caveats. For one, Sharp is keeping its options open: the most President and Chief Executive Kozo Takahashi will say is that he is focusing more on the Taiwanese offer. And Sharp, with little apparent sense of urgency despite years of deepening financial crisis, has given itself another month to decide. That gives INCJ the opportunity to come back with a more attractive proposal.

Second, any victory for shareholders might only be relative. Under Japanese rules either Foxconn or INCJ might be able to take a majority stake, of perhaps roughly two-thirds, without making an offer to existing stockholders. Painful dilution could still beckon.

For all that though, Sharp's willingness to take Foxconn's offer seriously is a surprise all investors in Japan should applaud.