Naver to deliver official position on LY restructuring soon

[Photo by MK DB]

South Korean tech giant Naver Corp. will deliver its official position on restructuring LY Corp., which it operates jointly with Japan’s SoftBank Group Corp., soon. This move comes after the Japanese government called for a reduction in Naver‘s influence over LY in the aftermath of a massive personal information leakage incident in the fall of 2023.

Sources from the information and communications technology (ICT) industry said on Wednesday that Naver will deliver its official position on LY to the Korean and Japanese governments soon. Once Naver issues its stance, Naver and SoftBank are expected to accelerate negotiations over LY ownership and roles.

Founded in 2021, LY is a 50-50 joint venture between Naver and SoftBank that is operated by parent company A Holdings Corp., which holds a 64.5 percent stake.

LY’s core services include LINE (messenger app) and Yahoo! Japan (search engine). LINE is particularly seen as Japan’s national messenger app, boasting over 96 million monthly active users in the country as of December 2023.

Developed and launched in 2011 by NHN Japan Corp., Naver’s Japanese subsidiary at the time, LINE grew rapidly after the Great East Japan Earthquake that hit the country in the same year and benefited from the poor local communication system at the time.

The messenger app is considered a vital infrastructure in Japan, which is sensitive to natural disasters. It also has more than 200 million global users outside Japan, including in major overseas markets such as Taiwan and Thailand. But LINE has faced consistent nationality controversies despite its Japanese roots as its development and service is led by Korea’s Naver.

Naver currently faces several challenges, including resolving the ongoing nationality controversy surrounding LINE in Japan, ensuring the smooth execution of its overseas business roadmap for LY, and generating synergy with SoftBank, which has been slow to gain momentum since the duo’s founding of A Holdings.

An industry insider familiar with Naver‘s situation said that addressing the LY ownership issue involves more than simply adjusting SoftBank’s ownership stake in A Holdings. It requires comprehensive restructuring of Naver‘s entire overseas business, which has been built around Japan.

“(Until now), Naver’s negotiations with SoftBank were mainly about understanding what the Japanese government wanted, but in-depth discussions on how both companies should manage LY must now take place,” the industry insider said.

This means that LY’s reorganization could go beyond a simple adjustment of Naver’s ownership in the company, which is a key pillar of the Korean tech giant’s business in Japan, to a reorganization of LY’s roles to strengthen synergies with Naver’s other overseas businesses, particularly in Southeast Asia and the United States.

As an example, LY wholly owns Z Intermediate Global Corp. (formerly LINE Corp.) whose wholly owned subsidiary in Korea is LINE Plus Corp. Z Intermediate Global also owns 35.7 percent of LINE Games Corp. and 18.8 percent of Naver Z Corp., which operates its global metaverse platform Zepeto. LINE Plus holds a 10 percent stake in Snow, an image messaging and multimedia mobile app created by Camp Mobile Corp., Naver a subsidiary.

With LINE more popular than Naver outside of Korea and Naver’s strategy of using the messenger app as a foothold to expand its overseas presence to Southeast Asia, negotiations between Naver and SoftBank regarding LY‘s governance are expected to proceed quickly.

But the outcome could vary depending on what specific moves the Korean and Japanese governments will make moving forward. The Korean presidential office said on Tuesday that “the government is in close consultation with Naver” in response to the Japanese government’s recent administrative directive to LY to review its capital relationship with Naver.

There is also speculation that the Japanese government intends to exclude Korean companies from its market altogether under the pretext of enhancing cybersecurity for national IT services, and there are growing calls for the Korean government to take further action.