MFG Mizuho Financial Group Inc

Board members of struggling Japanese electronics maker Sharp Corp. met Thursday and agreed to sell the company to Taiwan's Foxconn Technology Group for almost $6 billion, a decision hailed as a symbol of a push by Japan's government to open up the country's notoriously insular industries.

There was one snag. Foxconn, which assembles most of Apple Inc.'s iPhones, was having second thoughts. In a written statement released hours later, Foxconn said it would delay signing any deal because it had been surprised by new information Sharp had disclosed just a day before, and needed more time to study the details.

The surprise was a list of about 100 items of contingent liabilities—or potential future financial risks at Sharp totaling roughly ¥ 350 billion, or $3.1 billion—that Foxconn would assume if it completed the takeover, people familiar with the matter said. While Foxconn said it hoped to resolve the matter quickly and complete the deal, the 11th-hour development was symbolic of topsy-turvy negotiations in which the foreign suitor outmaneuvered a Japanese government-backed fund to win over one of the country's most venerated brands.

The deal was being watched closely not just because of its implications for Japan's reputation for protecting its prized industrial names from foreign ownership, but because it also marked a passing of the technological generations: 103-year-old Sharp was a pioneer of the modern television set in Japan and the pocket calculator; Foxconn, founded over four decades ago, has grown into a $120 billion behemoth thanks to its proficiency in manufacturing smartphones.

Until last month, Foxconn, formally known as Hon Hai Precision Industry Co., was reported by Japanese media to be the underdog bidder that trailed an offer from Innovation Network Corp. of Japan, a fund that has rescued several ailing Japanese technology companies since it was formed in 2009.

Foxconn won over Sharp's board, in part by offering to pay a significant premium and through the suasion of its billionaire chairman, Terry Gou. The Taiwanese tycoon had gained the acceptance of Sharp's bank backers and its board through personal visits to lay out Foxconn's bid, which included protecting jobs and keeping Sharp's technology in Japan.

But while Mr. Gou had publicly trumpeted signs of success during negotiations, he was silent for hours after Sharp finally said he had won the deal he had been chasing since last year, even as INCJ and Japan's industry minister, Motoo Hayashi, made comments that Sharp was now under Foxconn's control. After Foxconn finally announced the delay, Sharp declined to comment further.

It was the latest twist in a tortured history between Mr. Gou and Sharp dating to 2012, when Foxconn reached a tentative deal to invest in Sharp but later pulled out because Sharp's share price had fallen during the negotiations to make the deal final.

That history made some Sharp executives hesitant about another deal with Foxconn when Sharp's losses began piling up last year and it started looking for a bailout, people familiar with the matter have said. INCJ, the government-backed fund, was seen as a more trustworthy rescuer.

The tide turned around the time Mr. Gou addressed the Sharp board on Jan. 30 and gave a commitment to keep Sharp intact, in contrast to INCJ's plan to split up the company. On Feb. 4, Sharp's chief executive, Kozo Takahashi, said his company was giving more attention to the Foxconn bid, and Mr. Gou flew to Sharp's headquarters in Osaka, Japan, the next day in a bid to wrap everything up.

But an all-day meeting between Messrs. Gou and Takahashi ended inconclusively, with Mr. Gou saying the two sides were 90% of the way toward a deal while Sharp said it was still weighing both the Foxconn and INCJ bids.

The two sides' uneasy relationship was spotlighted by a disagreement over whether Sharp had agreed to make Foxconn its preferred negotiating partner. Mr. Gou, waving a piece of paper, said it had. Shortly afterward, Sharp filed a formal statement with the Tokyo Stock Exchange saying that was false.

Three weeks later, Sharp finally made up its mind on Thursday, only to learn that Mr. Gou—until that point a hard-charging leader bent on completing a deal as soon as possible—hadn't made up his.

Foxconn didn't detail the new information it said it had been handed Wednesday, but said it would take time to consider. "We will have to postpone any signing of a definitive agreement until we have arrived at a satisfactory understanding and resolution of the situation," Foxconn said.

Under the deal outlined by Sharp, it would issue new shares to Foxconn in exchange for an infusion of ¥ 489 billion. Sharp said Foxconn would purchase preferred shares held by two creditors—the core banking units of Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc.—for ¥ 100 billion.

Other payments that people familiar with the matter said would total about ¥ 70 billion would bring the total commitment by Foxconn to ¥ 659 billion, or $5.9 billion.

Foxconn's offer was double what INCJ was offering and included relief for Sharp's two main banks, which are saddled with the company's debt.

Shares in Sharp fell 14% to ¥ 149 on Thursday, while Hon Hai shares rose 2.6%. The deal would let Foxconn buy new Sharp shares for ¥ 118 and control nearly two-thirds of the company, diluting existing shareholders. Foxconn's move to postpone the deal came after markets closed for both stocks.

Contingent liabilities can often pose a hurdle in merger talks. They represent costs a company might or might not face based on the outcome of lawsuits, contracts or other factors. Sharp's 2015 annual report lists contingent liabilities relating to its solar business, which signed on for long-term supplies of electricity and raw materials that it ultimately didn't need.

In one electricity-supply arrangement, Sharp said it had agreed to make payments of at least ¥ 43.9 billion, and it said potential losses were difficult to estimate.

If Foxconn can join forces with Sharp, it would be in a better position to develop advanced screens for Apple's iPhones, which Foxconn already assembles. An iPhone's most expensive component is its touch-screen display, making up more than 20% of manufacturing costs, which is why Mr. Gou is eager to supply them, analysts say.

Still, Foxconn faces skepticism about how it would reverse Sharp's heavy losses if it takes over, given Mr. Gou's pledge not to split up the company or make major layoffs.

Atsuko Fukase in Tokyo contributed to this article.

Write to Eva Dou at eva.dou@wsj.com, Wayne Ma at wayne.ma@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com

(END) Dow Jones Newswires

February 25, 2016 14:15 ET (19:15 GMT)

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