By Makiko Yamazaki and J.R. Wu
TOKYO/TAIPEI (Reuters) - Taiwan's Foxconn put its takeover of electronics maker Sharp Corp on hold on Thursday after discovering previously undisclosed liabilities, sources said, throwing into doubt what was set to be the biggest takeover by a foreign firm in Japan's technology sector.
Loss-making Sharp announced earlier in the day that it had agreed to be bought by Foxconn, a contract manufacturing firm that is a major Apple Inc supplier.
But, in a separate statement issued just hours later, Foxconn said it would not sign until it had clarified terms in a "new key document" from Sharp. It did not elaborate.
Two sources with direct knowledge of the matter said the Japanese group had contingent liabilities that amounted to "hundreds of billions of yen".
That issue would have to be resolved before a deal could be finalised, said the sources, who spoke on condition of anonymity as the talks are confidential.
The sources did not elaborate on the nature of the liabilities or the exact amount. Reuters has not seen a copy of the document.
A spokesman for Foxconn, known formally as Hon Hai Precision Industry Co Ltd, declined to comment on the issue. Sharp also declined to comment.
The 11th hour delay throws into doubt a deal that would have marked the conclusion to five years of courting by Foxconn founder and billionaire Terry Gou and the opening of Japan's insular tech sector to foreign investment.
The loss-making display maker said earlier in the day that it would issue around $4.4 billion worth of new shares to give Foxconn a two-thirds stake. Foxconn's investment is set to total more than 650 billion yen ($5.8 billion), a separate source familiar with the matter said.
If a deal does go through, it would boost Foxconn's position as Apple Inc's main contract manufacturer and enable Sharp to start mass-producing organic light-emitting diode (OLED) screens by 2018, around the time Apple is expected to adopt the next-generation displays for its iPhones.
Foxconn sees ownership of Sharp as a way to better compete with Asian rivals such as Samsung Electronics Co.
"Sharp has the technology to build out the components to compete with Samsung as an Apple supplier, which means that with Sharp under its umbrella Foxconn can help Apple wean itself off Samsung," said Gavin Parry, managing director of Parry International Trading, a brokerage in Hong Kong.
"This gives Foxconn better pricing power with Apple," he added.
Before Foxconn's late statement, Sharp's stock tumbled to end 14 percent lower as the share dilution looked larger than expected, with traders noting that the proposed deal included the issuance of a class of shares that would be convertible next year.
($1 = 112.47 yen)
(Additional reporting by Taro Fuse, Joshua Hunt and Taiga Uranaka in Tokyo)