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Line’s offices in Shinjuku, Japan. (courtesy of Japan’s Line HR blog)

The “divestiture negotiations” between Naver and the Japanese company SoftBank appear to be further along than outside observers anticipated. This was revealed during a LY Corp. earnings briefing on Wednesday, where not only was a management reshuffle announced, but ongoing negotiations between SoftBank and Naver regarding an adjustment in each side’s stakes in the Line messaging service were also disclosed. This comes amidst a months-long vigorous “decoupling from Naver” campaign by Japan, raising questions about whether Naver can sell its shares to SoftBank at a fair price.

LY CEO Takeshi Idezawa announced a reshuffling of the board of directors, the key decision-making body within the company. Most crucially, the reshuffle involved reducing the number of inside directors by two and increasing outside directors by one. Under these changes, Kentaro Kawabe, the board director of SoftBank, and Idezawa are the remaining inside directors. Shin Jung-ho, the only Korean inside director and chief product officer, has resigned from the board. 

Idezawa justified the reshuffle citing the need for “separation of management and execution” and the “creation of an independent management structure by increasing the number of outside directors.” This, however, effectively ousted Naver executives from management.

These changes in the board suggest that the “divestiture negotiations” between Naver and SoftBank are well underway. Both companies currently hold a 50% stake in A Holdings, the parent company of Line and Yahoo! Japan operator LY Corp., meaning that any changes to LY’s management cannot proceed without Naver’s agreement.

The next stage in the divestiture process involves ownership adjustments, specifically SoftBank's acquisition of Naver’s stake in A Holdings. Idezawa unexpectedly revealed that discussions about adjusting the two companies' stakes are in progress, quickly shifting market attention to the scale of the sell-off and share prices.

A source familiar with Naver’s situation commented, “For changes such as amending the articles of association, it is necessary to meet the shareholding requirement [two-thirds of the voting shares] for a special resolution. Considering this, SoftBank will likely aim to acquire at least 15% of Naver’s holdings.” 

The source added, “During the buying process, the negotiations over how much the control premium will be are expected to be a tense war of nerves between the two sides.”

A Holdings is valued at over 20 trillion won. In other words, even without the control premium, the value of Naver’s stake stands at 10 trillion won. Idezawa's statements today regarding the “establishment of safe governance” and the Japanese government’s administrative directives are interpreted as an attempt by SoftBank to leverage enhanced security measures and Japanese government authority to acquire Naver’s shares at a bargain. Industry insiders also speculate that Naver could suspend the sale negotiations if it does not receive a reasonable control premium.

Naver has been tight-lipped about the share sale negotiations, commenting, “It is an issue to be decided based on our long-term business strategy. We are reviewing it internally.” 

Science and ICT Minister Lee Jong-ho said at a press briefing on Wednesday, “We respect Naver's managerial judgment.” A more detailed explanation regarding the share sale negotiations is expected at SoftBank's earnings briefing scheduled for Thursday.

By Jung Yu-gyung, staff reporter;  Lim Ji-sun, staff reporter; Kim So-youn, Tokyo correspondent

Please direct questions or comments to [english@hani.co.kr]