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SoftBank Considers Combining Yahoo Japan With Line Service

Takahiko Hyuga and Pavel Alpeyev
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SoftBank Considers Combining Yahoo Japan With Line Service

(Bloomberg) -- SoftBank Group Corp. is considering a plan to consolidate its Yahoo Japan internet business with the messaging service Line Corp.

Z Holdings Corp., a unit of SoftBank’s telecom arm formerly known as Yahoo Japan, confirmed that it’s in talks with Tokyo-based Line about a possible merger, but said no final decision on a deal had been made. Line separately said it is considering such a merger along with other opportunities to increase value. Z Holdings shares surged in Tokyo, while Line’s stock was poised to climb.

SoftBank Corp., the domestic telecom arm of Masayoshi Son’s business empire, holds a 44% stake in Z Holdings, while Line is controlled by South Korea’s Naver Corp. SoftBank Corp. is considering setting up a new company with Naver, according to people familiar with the matter who asked not to be identified because the talks are private. They may reach an agreement as early as this month, one of the people said.

SoftBank and Line have increasingly competed in fields such as digital payments, and an alliance may allow them to save money on expenses like subsidies. Both companies have also been investing in artificial intelligence to improve their services. Line initiated the talks this summer and is looking for the partnership to give it a fighting chance in AI against larger rivals in the U.S. and China, according to a person familiar with the matter.

“We can expect synergy benefits for its payment business and e-commerce operations,” said Taketo Yamate, senior analyst at Frontier Management Inc., a Japanese M&A advisory boutique.

Japan’s biggest messaging service would become a wholly-owned subsidiary, but will retain a separate brand, the person said, asking not to be identified because the details are private.

Z Holdings shares rose as much as 18% in Tokyo on Thursday, the biggest intraday jump since 2013. SoftBank Corp. rose as much as 2.6%, while Naver jumped as much as 12% in Seoul, most since 2008. Line was set to gain about 14% and hadn’t traded yet as of 10:30 a.m.

SoftBank Group’s founder Son has relied on earnings from the telecom operations in Japan to finance his investments in technology companies overseas. But profits in the business may come under pressure from the entry of e-commerce giant Rakuten Inc. planned for next year. Son has pushed the company to go “beyond carrier” operations, strengthening its alliance with Yahoo Japan, acquiring online clothing retailer Zozo Inc. and launching a mobile payments service PayPay. Rakuten slumped as much as 6.4% on Thursday.

The merger will have an immediate impact by ending a costly mobile payments rivalry between Line Pay and PayPay, Bloomberg Intelligence analyst Vey-Sern Ling wrote in a note. Both companies have seen their profit margin slip because of aggressive spending on user acquisition, he said.

Yahoo Japan was once the country’s leading search engine, web portal and major e-commerce player, but has lost ground as users migrated from PCs to smartphones. Line’s app not only counts 82 million monthly active users in Japan, but is also the dominant messenger in Taiwan and Thailand, where it has 21 million and 45 million customers respectively. The company has also been expanding into financial services by partnering with Nomura Holdings Inc. and Mizuho Financial Group Inc., a move that puts it in direct conflict with Rakuten, which operates a bank and a rival mobile payment system.

“There is a possibility of synergies that go beyond what’s obvious,” said Makoto Kikuchi, chief investment officer at Myojo Asset Management Co. in Tokyo. “There is considerable potential here, but neither company has a track record pulling something like this off.”

Story Link: SoftBank’s Z Holdings and Line in Final Talks to Merge: Nikkei

(Updates with merger details in seventh paragraph.)

--With assistance from Yuki Furukawa.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net;Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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