Foxconn Takes a Few Sharp Turns Pursuing Deal for Japanese Company

It’s the deal that keeps getting delayed.

More than a month after Terry Gou, the chairman of the world’s biggest electronics assembler, Foxconn Technology Group, flew to Sharp Corp.’s headquarters in Osaka to clinch a near $6 billion bid to take over the floundering Japanese electronics company, the two parties have yet to come to an agreement.

Deadlines have come and gone and talks have been replaced by shuttle diplomacy. Sharp Chief Executive Kozo Takahashi recently met with Mr. Gou in Taipei in a bid to salvage the deal after Sharp at the last minute disclosed some 350 billion yen ($3.14 billion) in contingent liabilities, or future financial risk, according to people familiar with the matter.

Foxconn’s bid to take over Sharp is mired in difficulties that evoke memories of a similar attempt to buy into the company four years ago that was aborted by Mr. Gou. The protracted talks mark a change of pace for Mr. Gou, a normally hard-charging tycoon who built Taiwan-based Foxconn, known formally as Hon Hai Precision Industry Ltd., into a $120 billion contract manufacturing behemoth after starting out with a loan from his mother four decades ago.

This time around, however, Mr. Gou potentially has some leverage from Sharp’s March 31 debt-repayment deadline. But Foxconn’s chairman has trumpeted a number of investment plans over the years that then failed to materialize, giving rise to a sense of déjà vu among some investors. Some executives at Sharp’s lenders said they would likely extend the deadline by a month, giving the company several more weeks to close the deal.

Foxconn is seeking to lower the price it plans to pay for Sharp shares by as much as ¥100 billion, people familiar with the situation said. The two sides are renegotiating how much of a stake Foxconn would take in Sharp, one person said. Previously, Foxconn—which assembles iPhones for Apple Inc. and a range of gadgets for other electronics brands—offered to pay ¥489 billion for a majority stake in Sharp.

People familiar with the talks said that while they were still hopeful that Foxconn will come to an agreement to buy Sharp, negotiations were continuing and there was a chance the deal could fall apart. Last month, Foxconn beat out a rival bid from Innovation Network Corp. of Japan, or INCJ, a government fund.

“Terry thinks he’s the only game in town,” said a person familiar with the talks. “First he negotiated soft. Now he’s negotiating hard.”

Mr. Gou has also been pushing Sharp to address some of the contingent liabilities in its next quarterly earnings report, for the period ending March 31, by adding accounting provisions or taking write-downs, according to people familiar with the talks.

The amount of compensation Foxconn would pay Sharp’s lenders is another area of focus in the talks, the people said. Mr. Gou wants to reduce the ¥100 billion amount it offered banks for their preferred shares in the bid outlined in February, the people said. Some bank officials said they were considering all possibilities, including lowering interest rates on the loans and lengthening the payback schedule.

Foxconn is also asking to nominate four new board members but this is proportionate to the stake the company would take, said one of the people. Sharp’s board would need to reconvene to approve any revised terms.

A Sharp spokesman declined to comment. In a statement Tuesday, Foxconn said both companies were “working hard to reach a satisfactory agreement as soon as practically possible.”

In March 2012, Foxconn had said it would buy a 10% stake in Sharp. But the deal slowly unraveled after Sharp’s stock plunged following a dismal earnings report.

Mr. Gou, 65, is a hard bargainer and is known to request favorable terms that counterparties can’t accommodate, according to people who have worked with him. In 2014, Mr. Gou appeared in Jakarta, saying he would consider investing at least $1 billion to build a factory in Indonesia. But local officials said Mr. Gou made difficult demands, such as requesting free land. Foxconn didn’t make Mr. Gou available for comment.

His acquisition track record has also been mixed. In 2009, Mr. Gou announced the $5.3 billion takeover of Taiwanese flat-panel maker Chi Mei Optoelectronics Corp. by Foxconn’s panel subsidiary, Innolux Display. But since then, Foxconn has struggled to integrate the business and Innolux shares have slumped nearly 80%.

INCJ has so far kept a low profile since admitting defeat in the battle for Sharp. A person familiar with the situation said the fund was watching the situation with interest, but had no intention of restarting talks.

Toshiba Corp.’s deal to sell its appliance business to a Chinese company, unveiled last week, reduced the appeal of a takeover of Sharp for INCJ because the fund had wanted to combine that unit with Sharp’s appliance operations, this person said.

As uncertainties surrounding the deal grow, investors are growing wary. On Tuesday, Sharp shares fell 6.5% to ¥129 in Tokyo trading as investors reacted to the possibility of revised agreement terms. The shares have been buffeted this year by the deal’s ups and downs, hitting a low of ¥109 in January before the Foxconn offer emerged and a high of ¥179 in February when investors thought the deal was imminent.

—Eva Dou and Eric Pfanner contributed to this article

Write to Wayne Ma at wayne.ma@wsj.com, Atsuko Fukase at atsuko.fukase@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com