Naver, SoftBank reach deal on merger

Posted on : 2019-11-19 17:30 KST Modified on : 2019-11-19 17:30 KST
Line and Yahoo! Japan to combine into joint venture focusing on AI and IT
Changes in holding structure of Line, Yahoo! Japan after merger
Changes in holding structure of Line, Yahoo! Japan after merger

On Nov. 18, South Korea’s Naver and Japan’s SoftBank reached an agreement to form a joint venture that will merge the former’s Line messenger app and the latter’s Yahoo! Japan portal. South Korea and Japan’s leading IT firms are joining forces with the goal of becoming a forerunner in the area of artificial intelligence (AI), one of the key areas of the Fourth Industrial Revolution. While their initial objective is to solidify their position in the Japanese market, their long-term goal is to surpass global IT giants such as Google and Facebook in the US and Tencent in China.

According to a joint press release by Naver and SoftBank released on Monday, the two companies plan to establish a joint venture in Japan to integrate management of Naver’s Japanese subsidiary Line with Z Holdings, the management company of SoftBank sub-subsidiary Yahoo! Japan. The joint venture, which is to be called LINE, is to be established with funding of 50% each from Naver and SoftBank. Line and Yahoo! Japan shares held respectively by Naver and SoftBank are to be moved into Z Holdings through exchanges and transfers, with the partnership having 100% control over Z Holdings. At a press conference in Tokyo that evening, Line CEO Takeshi Idesawa and Z Holdings CEO Kentaro Kawabe said they hoped to “become the world’s leading AI tech company.”

After deciding on the joint venture’s establishment conditions and other details by next month, the companies plan to launch the post-merger company around October 2020. In their press release, they said, “SoftBank and Naver have been in agreement since June on the need for management integration and began discussions in August on concrete merger plans and business directions.”

The two companies also did not mince words about the merger’s aims.

“The social and industry environments that surround us have been changing rapidly from day to day. In particular, overseas companies based in the US and China represent an overwhelming portion of the internet service market,” they noted in their press release.

“In terms of scale, a very large gap exists between these overseas companies and companies in Japan and other Asian countries,” they continued.

Idesawa explained, “One of the reasons for the feeling of crisis is the presence of massive global IT companies. Even after our two companies have merged, there will still be a double-digit gap between [us and] the huge US companies.” Naver Line and Yahoo! Japan boast 80 million and 50 million users, respectively. Companies are able to achieve market dominance when they have larger user bases, which serve as the foundation for online services such as mobile messaging and simplified payment systems.

Observers are also paying close attention to the areas where Naver and SoftBank are jointly investing. Announcing plans to “pursue synergy between the two companies’ specific business areas while also investing jointly in new business areas,” the press release specifically listed areas such as AI, e-commerce (including simplified payment systems), advertising, and online-to-offline services (business strategy whereby consumers are drawn in on online platforms to make purchases in physical stores). By uniting their previously separate investment in new industries, they are poised to achieve larger scale and higher efficiency with their investment. One example is the simplified mobile payment market in Japan, where the two companies have previously been competing intensely with marketing spending in the hundreds of billions of won.

In Japan, the two companies’ management integration is being seen as a bid for global market dominance. Amid this anticipation, share prices for both SoftBank and Naver Line on the Tokyo stock market each rose by over 1% the same day. But many observers are urging a wait-and-see stance on whether the integration will generate actual results. Naoki Fujiwara, a fund manager with Japan’s Shinkin Asset Management, was quoted by the Financial Times as saying, “Yahoo Japan and Line are not yet global players.”

“This is a deal for the two companies to survive in Japan,” Fujiwara said.

By Choi Min-young and Kim Kyung-rok, staff reporters, and Cho Ki-weon, Tokyo correspondent

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