Artificial intelligence

A private LINE between Naver and Softbank

Softbank and Naver plan to take messaging app LINE private. This will not only lead to improved R&D spend, it will also unlock value for the majority shareholders.

Amid a competitive landscape dominated by tech giants from the US and China, two well-known Asian companies are looking to consolidate their resources to become the next leader in AI technology.

Japanese investment conglomerate Softbank and South Korean internet giant Naver Corporation have agreed to form an equally owned joint venture to take messaging company LINE private. The consolidation is part of a multi-step transaction that also involves Z Holding Corporation, a Softbank subsidiary formerly known as Yahoo Japan.

The joint venture will privatise LINE at ¥5,200 ($36.85) a share, a 16% premium to its 100-day share price average. Softbank will then move Z Holdings into the new entity and issue 2.8 billion new shares to the JV. Once completed, the joint venture will own Z Holdings, which will have direct ownership of LINE and Yahoo Japan operations. The deal is expected to complete in October next year.

The plan is to merge LINE, a loss-making entity which is 73% owned by NAVER, with the balance sheet and financial largesse of Z Holding Corporation, which is 44% owned by Softbank Corporation. Together, the combined entity reported net sales of ¥1.2 trillion across 100 million domestic users last year. The turnover rivals Japan’s e-commerce company Rakuten, which reported ¥1.1 trillion in annual sales according to the reported filings.

The agreement comes as both companies are under pressure to increase investments into new technologies. But with Z Holding and LINE not only competitors in artificial intelligence but also in other services including digital payments, advertising and search, combining resources removes overlapping expenses. Both Z Holdings and LINE have already said that the merged entity is expected to spend at least ¥100 billion a year on AI and other technology.

Given the multi-step integration and the current cross-ownership structure, the deal is complex. But in the end, Softbank will indirectly own more than 60% of LINE, based on internal calculations. Though Naver Corporation loses its majority share, the partnership with Softbank Corporation and Masayoshi Son’s business empire should win backing from shareholders as it increases the value of the subsidiary holding.

Optimism was evident as the share prices for Naver and Softbank, along with its affiliates, climbed higher after the announcement.

¬ Haymarket Media Limited. All rights reserved.
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