Japan's cash-strapped Sharp Corp may end up with only one option to survive - dump its consumer business and submit to a future as a component supplier to its Taiwanese partner Hon Hai Precision Industries.
In the wake of a deteriorating earnings outlook and ratings downgrades, investors have begun questioning the viability of 100-year-old Sharp, which on Monday was still insisting Hon Hai honor a money-losing deal to take an equity stake in the firm.
Sharp's shares have lost nearly three-quarters of their value since the start of the year, while the cost of insuring its debt against default has been widening since February.
The struggling pioneer of LCD televisions is relying for backing on its main banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group.
In return for help, a banking source told Reuters those lenders may insist on closer ties to Hon Hai and the sale of non-LCD business to raise cash.
Sharp's refinancing clock is counting down. A 200 billion yen ($2.54 billion) convertible bond matures in September next year, but Sharp, with debt totaling 1.25 trillion yen, including 360 billion yen of short-term commercial paper, may need to raise cash earlier.
A net loss of 138 billion yen in the three months ended June 30 eroded Sharp's equity ratio to 18.7 percent, below the 20 percent threshold generally considered to be healthy.
Sharp before revealing expanded losses on Thursday, had been relying on a cash injection of 66 billion yen from Hon Hai, the flagship of Taiwan's Foxconn Group, in return for giving it a 10 percent stake. The deal was agreed in March but has not yet been paid.
However, a share slump that in the past two days has seen Sharp's stock drop to below 190 yen means Hon Hai is no longer prepared to honor a deal that values Sharp shares at 550 yen apiece. At Sharp's current market value a 66 billion yen investment could buy Hon Hai a third of its stock.
In a statement on Friday, Hon Hai said that Sharp had already released it from the terms of the deal "due to the volatility of Sharp Corporation's share price". The Japanese company responded on Monday by insisting that it expected the Taiwanese firm to fulffulfillil the original terms.
"We haven't agreed to that," Sharp spokeswoman, Miyuki Nakayama, said, when asked about Hon Hai's statement.
Still, the choice for Sharp is to accept less money or agree a bigger stake for its fellow Apple supplier - and with it greater management say that may urge it to close down its TV assembly plants and sell off its solar panel and appliance units.
Sharp's shares on Monday were trading 4.7 percent lower after slumping almost 30 percent to their lowest closing level since 1976 on Friday.
($1 = 78.5950 Japanese yen)