Line Yahoo quickens system separation with Naver

[Graphics by Song Ji-yoon and Lee Eun-joo]

Line Yahoo Corp., which is jointly operated by South Korea’s Naver Corp. and Japan’s SoftBank Corp., is expedite its separation with Naver. The move means Naver’s influence over Line Yahoo, which services messaging app Line, will gradually diminish.

Line Yahoo held a shareholders’ meeting in Tokyo, Japan, on Tuesday where it announced its policy to sever its relationship with Naver.

Line Yahoo Chief Executive Officer Takeshi Idezawa said that the company is “accelerating the separation of the Naver Cloud and employee systems authentication base, which we aim to complete by 2024.”

“Although we planned to complete the separation of subsidiary systems by 2026, we intend to bring this schedule forward.”

Idezawa also noted that the company is ending its consignment relationship with Naver in almost all its service business areas in Japan.

Measures to strengthen security in response to personal information leaks will be announced in July 2024, which aligns with the July 1st deadline set by the Japanese Ministry of Internal Affairs and Communications.

Regarding the Japanese government’s request for a review of Naver’s capital relationship, Idezawa noted that “it has requested the review from the parent company based on administrative guidance” and that “no decisions have been made yet, but any developments will be promptly disclosed.”

At the shareholders meeting, Line Yahoo processed an agenda item to exclude Naver chief product officer (CPO) Shin Jung-ho, known as “Line’s father,” from the board of directors.

It also reduced the total number of board members from seven to six and emphasized that four out of six would be external directors to enhance board transparency.

However, this process means that all of Line’s current board members are Japanese nationals. SoftBank will hold its shareholders’ meeting on Thursday.

The current issue between Korea and Japan is the review of equity relations. Line Yahoo revealed in November 2023 that about 440,000 pieces of user information were leaked in a cyberattack on its servers.

Line Yahoo explained at the time that the attack targeted an employee of a company contracted with Naver Cloud, and Line Yahoo, which shares some systems with Naver, was also affected. Its authentication system is based on Naver Cloud, and a single hacking incident led to a large-scale leakage of user information due to the integrated employee system.

The problem is that the Japanese government has essentially demanded the sale of shares, ordering the readjustment of security governance via administrative guidance in April 2024 as parent company Naver was not adequately managing and supervising the contracted services.

Although the government did not directly demand the sale of Naver’s shares, it called for a review of the equity relationship, effectively requesting a settlement. This sparked criticism in Korea, where it was accused of excessive interference. Line Yahoo’s minority shareholders also urged the company to separate its capital relationship with Naver quickly at the shareholders’ meeting.

Line Yahoo, a publicly traded company, is 64 percent owned by its parent company A Holdings, which is jointly controlled by Naver and SoftBank, leading to calls within Japan to dissolve the intermediate holding company.

IT industry insiders expect that full-scale negotiations between Naver and SoftBank will continue from July. Although the dup initially considered separating business areas between Japan (SoftBank) and other regions in Asia (Naver), this was deemed impractical, and the focus is now squarely on the sale of the shares.