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Line Loss Shrinks as Hedge Funds Attack SoftBank Merger Deal

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(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.

Line Corp., the Japanese messaging service poised to join SoftBank Group Corp., reported a narrower operating loss and a gain in users in the second quarter, bolstering minority shareholders who argue the merger undervalues the company.

Its operating loss shrunk to 9.6 billion yen ($91 million) in the three months ended June, from 13.9 billion yen a year ago, the company said Wednesday. Sales rose 5.3% to 58.4 billion yen. Line’s monthly active user base expanded to 166 million in the core markets of Japan, Taiwan, Thailand and Indonesia.

SoftBank founder Masayoshi Son engineered a complex deal last year to combine SoftBank’s Yahoo Japan internet business with Line to create a national champion, with the goal of competing more effectively against global giants like Google and Tencent Holdings Ltd. SoftBank and South Korea’s Naver Corp. plan to take Line private and then fold Line and Yahoo Japan into a new joint venture. But the deal has come under attack from overseas hedge funds that said the tender offer price is too low.

SoftBank and Naver originally said they would pay about 5,200 yen per share for Line, then raised that price to 5,380 yen a share in December. Line shares closed at 5,560 on Wednesday. The coronavirus outbreak has forced the companies to push back the tender offer, originally expected in May or June, and delay the closing date beyond October. The terms of the deal remain unchanged.

The hedge funds have argued that the pandemic has made companies like Line more valuable and pointed out the global rally in technology stocks. Churchill Capital said the more appropriate price is between 6,112 yen and 7,851 yen, according to a July 9 letter to Line seen by Bloomberg News.

After taking Line private, SoftBank and Naver plan to undertake a reorganization that will eventually result in a 50-50 ownership of the new company. The combined entity will hold stock in Z Holdings Corp., which will remain public with Yahoo Japan and Line as wholly owned subsidiaries.

Advertising sales on Line’s platform, its main source of revenue, rose 3.9% from a year ago. The company’s strategic business, which includes services powered by artificial intelligence and mobile payments, reported a 12% increase in revenue and a loss of 19.5 billion yen.

Line’s monthly active users in Japan totaled 84 million, about 3 million more than the same period a year ago and roughly half of their customer base in the core markets. Thailand, its second-biggest market, saw an increase to 47 million, while Indonesian customers declined to 13 million. Taiwan saw little change at 21 million users.

(Updates with user detail in the final paragraph)

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