Taiwan's Foxconn is set to agree on Wednesday to acquire Sharp, gaining a big discount on its original offer after a month of wrangling about potential liabilities that sowed more doubt about whether the two firms will be able to work well together.
The companies are due to hold separate board meetings on Wednesday in which they are expected to approve the deal, sources familiar with the negotiations said, declining to be identified as they were not authorised to speak to the media.
Foxconn, formally known as Hon Hai Precision Industry Co, is likely to cut its initial 489 billion yen (AU$5.7 billion) offer for a two-thirds stake by about 100 billion yen, sources have said.
The deal marks the largest acquisition by a foreign company in Japan's insular tech industry and the end of independence for a 100-year-old company which started out making belt buckles and mechanical pencils.
It would also give Foxconn control of Sharp's advanced screen technology and help strengthen its pricing power with major client Apple.
The two companies had been on the verge of finalising a deal last month but Foxconn postponed at the last minute following the emergence of previously undisclosed contingent liabilities at Sharp.
The hitch revived ill will from four years ago, when Foxconn agreed to take a stake in Sharp as part of a broader partnership. Sharp then warned of losses and Foxconn walked away as the shares sank.
The Yomiuri newspaper reported on Wednesday that the Taiwanese company was planning to overhaul Sharp's management including replacing its CEO.
Sharp has said Foxconn is set to pick a majority of its board. But investors had expected it to leave much of management in place for some time. Sources had said earlier this year that Foxconn chief executive Terry Gou offered to keep most members of top management in place, and to not fire employees.
Foxconn was not immediately available for comment. A spokesman for Sharp denied that such a decision had been made at this point.
Analysts said that even without the history of distrust, there was little assurance the combined company will be able to beat rivals in new screen technology such as OLED, which Apple is expected to adopt for its iPhones by 2018.
"If you are talking about two years, it will be difficult. Three years, there is potential. Five years, then definitely,” said Kylie Huang, analyst with Daiwa-Cathay Capital Markets in Taipei.
She added that Samsung Electronics' display unit and LG Display will for some time likely remain the preferred choice for OLED or organic light-emitting diode screens which are thinner, lighter and more flexible than other displays.
The Taiwan Stock Exchange has suspended trading in Foxconn shares due to a major announcement. Shares in Sharp were up 5.4 percent in Wednesday afternoon trade.
Although the century-old Japanese firm was once a highly profitable manufacturer of premium TVs, massive investments in advanced liquid crystal display (LCD) plants failed to pay off as more nimble Asian rivals slashed prices. Two bank bailouts since 2012 have failed to help turn its business around.
(Editing by Edwina Gibbs)