Sharp board members have decided to give Hon Hai preferred negotiating rights, choosing the Taiwan firm's offer over a rescue plan from a Japanese state-backed fund, a source familiar with the move said on Thursday.
Hon Hai, also known as Foxconn and one of Apple's key iPhone assemblers, offered over 700 billion yen ($5.9 billion) for Sharp, more than double the amount of investment proposed by the fund, according to Japanese broadcaster NHK.
Both Sharp and Hon Hai declined to comment.
The decision comes after months of uncertainty over the fate of the company, whose display panel business has continued to suffer massive losses despite two major bailouts by its banks in the last four years.
The fund, the Innovation Network Corp of Japan, had been seen as the preferred choice of some government officials who were anxious to keep jobs and technology in Japan. It had aimed to rescue Sharp by merging Sharp's LCD business with that of rival Japan Display's.
But many in the industry doubted such "old-school" government intervention could help Sharp survive as competition from South Korean and Chinese rivals ratchets up. Sources had also said board members were worried whether Chinese regulators would agree to an LCD merger with Japan Display.