Sharp's shares dived nearly 15 percent on Friday, after the Taiwanese multinational that owns Foxconn said it would delay its multi-billion-dollar takeover to review new information it had received about the ailing Japanese giant.
Analysts had cheered Hon Hai Precision's bid for Sharp - the first overseas acquisition of a major Japanese electronics firm - which has teetered on the edge of bankruptcy for years as its consumer electronics division piled up massive losses.
But after markets closed Thursday, Hon Hai, the world's biggest electronics supplier, said it would not ink the pact until it had a chance to digest fresh information about one of Japan's best-known companies.
It did not give details of the documents it had received.
However, Bloomberg News, quoting people familiar with the matter, said it involved potential liabilities topping JPY 300 billion ($2.7 billion or roughly Rs. 18,554 crores) that Hon Hai would have to assume in a takeover.
Media reported the value of the takeover could reach JPY 700 billion, including Sharp's debt.
A Taiwan-based Foxconn spokesman declined to comment, as did a Sharp spokeswoman in Tokyo.
Japan's leading Nikkei business daily said Foxconn had prior knowledge of the possible liabilities, which reportedly could include restructuring costs and layoffs.
It added that Sharp has dispatched executives to Taiwan to try to save the deal, which would see Hon Hai take a 65.9 percent stake in Sharp worth JPY 489 billion.
Sharp's shares slumped on Friday, and were down nearly 15 percent at JPY 127 just before 4:00am GMT.
The takeover had appeared to conclude a years-long courtship of Sharp by Terry Gou, Foxconn's colourful billionaire owner, which counts iPhone maker Apple among its top clients.
"It's odd that after chasing a company for four years you wouldn't do your due diligence and find out about off-balance sheet contingent liabilities far ahead of striking a final agreement," said Alberto Moel, an analyst at Sanford C. Bernstein & Co.
But Hideki Yasuda, an analyst at the Ace Research Institute in Tokyo, said the deal would likely still go ahead.
"There is no obligation under Japanese accounting rules to disclose contingent liabilities," he told Bloomberg News.
"The fact that Sharp didn't have to set aside money for this suggests that the probability is low and more of a latent risk."
Sharp had been mulling rival offers from Hon Hai and the public-private Innovation Network Corporation of Japan (INCJ).
The Japanese government was reportedly concerned about Sharp's key technologies falling into the hands of a foreign firm.
Despite its bleeding balance sheet, Sharp is still a leader in liquid crystal display (LCD) technology and the firm remains one of Japan's best-known corporate brands overseas.
But the century-old firm piled up eye-watering losses after the 2008 global financial crisis and has struggled through a restructuring plan that has yet to pull it out of the red.
Analysts generally praised the Hon Hai deal, saying it would enhance the firms' existing business ties.
The companies have worked together for years on large-sized screen technology, including for televisions, and jointly operate an LCD panel plant in Japan.