Taiwan's Foxconn agreed to acquire Sharp at a big discount to its original offer after a month of wrangling that sowed more doubts over whether the two companies can work well together and fend off fierce competition from smartphone display rivals.
Foxconn, formally known as Hon Hai Precision Industry Co, will pay about $3.5 billion for a two-thirds stake, nearly $900 million less than its initial offer, the companies 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 that 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 Inc.
Highlighting Sharp's dire finances, the ailing display maker estimated an operating loss of around 170 billion yen ($1.5 billion) for the year through Thursday in contrast to its earlier profit forecast of 10 billion yen.
Foxconn said it will buy Sharp's shares at 88 yen per share, a 35 percent discount to their close on Wednesday.
The two companies had been on the verge of finalizing 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.
Analysts said that even without the history of distrust, there was little assurance the combined company will be able to deflect pricing pressure in LCDs or beat rivals in OLED, a new screen technology 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.
Shares in Sharp rose 4 percent on Wednesday ahead of the announcement. The Taiwan Stock Exchange suspended trading in Foxconn shares for the Wednesday session.
Although the Japanese firm became 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.
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 executives in Taipei declined to comment on plans for CEO Kozo Takahashi, saying more details would be available at a signing event and news conference on Saturday.