Naver ponders on selling part of its stake in Line Yahoo to SoftBank to become second largest shareholder

Photo courtesy of Kyunghyang Shinmun

Naver has begun pondering over the control of Line Yahoo, which operates Japan‘s top messaging application Line. “We are open to all possibilities, including the sale of our stake, and in discussions with (Japanese partner) SoftBank to create the best outcome for the company,” Naver said.

As the recent controversy over Line Yahoo, which stemmed from administrative guidance from Japan’s Ministry of Internal Affairs and Communications following the leakage of personal information, has turned into an emotional battle between Korea and Japan, attention is focused on possible options for the perspective of Naver's "real interests.”

According to information technology (IT) industry sources on May 12, the most likely option is for Naver to hand over a part of its stake to SoftBank and become the second-largest shareholder.

Under the current “50-50” structure, SoftBank would only need to receive a single share from Naver to become the largest shareholder, but it reportedly wants to secure two-thirds of the voting shares in order to change the articles of incorporation. To do so, it would need to take over at least 15 percent from Naver. SoftBank CEO Junichi Miyakawa also said on May 9, "There is no significant change (compared to the current situation) between 51 percent and 49 percent," indicating that he wants to acquire more shares.

The "sale of all shares," which was originally discussed, is unlikely. Naver’s stake in Line Yahoo is estimated to be worth around 10 trillion won, including a management premium, which is huge money for SoftBank to buy all of them. “SoftBank had planned to pressure Naver to sell all of its stakes at a lower price than the market price by early July, but the backlash from Korea was greater than expected,” said an IT industry insider.

“It is likely that Naver will be reduced to the second-largest shareholder while maintaining its connection to Line Yahoo,” said Ahn Jae-min, a researcher at NH Investment & Securities. “It will not be easy to sell its entire stakes as the company runs various businesses like Line Manga, and Naver Z outside of Japan, such as Taiwan and Thailand.”

SoftBank has already been taking the lead in the management of Line Yahoo, including the board of directors, while Naver has been in charge of data and network maintenance. Therefore, some say that it would be better for Naver to use the money from the sale of its stake to invest in artificial intelligence (AI) and mergers and acquisitions (M&A) rather than clinging to control of the messaging app company.

It will be interesting to see how Naver will protect its overseas businesses that are intertwined with Line Yahoo. Naver‘s overseas businesses, including payment, delivery, and webtoons, are centered around Line. Line Yahoo owns 100 percent of Z Intermedia (formerly Line Corporation), which has Lineplus as a wholly owned subsidiary. Lineplus, a Korean corporation, leads overseas operations in Thailand, Taiwan, and Vietnam. There are observations that Naver could give SoftBank its Japanese business and receive overseas business in a “give and take” arrangement.

There is a way to solve the problem without reducing the stake. Japan’s Ministry of Internal Affairs and Communications believes that Line Yahoo‘s over-reliance on Naver for system operations is a problem. Line Yahoo can solve the problem by separating the system from Naver to enhance security, but maintaining the current shareholding structure.

However, it is unclear whether this alone will be enough to convince the Ministry of Internal Affairs and Communications, which has called for a review of the capital relationship.

It is pointed out that if Japan's real intention is Naver's "entire sale of its stake," such a situation could happen again at any time.

※This article has undergone review by a professional translator after being translated by an AI translation tool.