Every year, rumours emerged that SoftBank’s billionaire founder Masayoshi Son was interested in acquiring WhatsApp rival Line. People close to Mr Son played down the speculation each time, saying he would have bought it already if he was serious.
As it turns out, Mr Son had been trying to convince the South Korean owners of Line of the benefits of joining the SoftBank group for several years with talks accelerating over the summer. Those efforts paid off this week as SoftBank-backed Yahoo Japan agreed to combine with the messaging app in a deal that would create a group worth $30bn.
So why did it take so long for the marriage to materialise?
Business ties date back to a 2013 technology partnership between Yahoo Japan and South Korean internet search group Naver, which owns 73 per cent of Line. Naver itself has set up a joint investment fund with SoftBank in the past. The SoftBank founder, who is of Korean descent, is also friends with Naver’s founder, Lee Hae-jin. And Line fits in with Mr Son’s love affair with everything related to AI.
Still, a major obstacle to buying Line was Naver’s ambitions to go global on its own. It found success in Japan through the messaging app, which was launched in 2011, a few months after the March 11 earthquake and tsunami disrupted telephone services.
In previous talks with SoftBank, Naver resisted handing over control to Yahoo Japan because of fears that it would be swallowed by the Japanese company with a market value twice its size, according to people with knowledge of the discussions.
But the competitive landscape for both Line and Yahoo Japan have changed significantly in the past five years. As the heads of both Line and Yahoo Japan publicly admitted, going solo was no longer an option for either company as far bigger rivals such as Facebook and WeChat owner Tencent charged ahead.
Despite its success in messaging with its cutesy digital stickers, Line’s global ambitions faltered as it failed to expand outside south-east Asia. It now focuses on Japan, Taiwan, Thailand and Indonesia, where it has 164m active monthly users.
Analysts say the lossmaking company has also struggled in executing its services, which have now expanded from messaging and games to payments and banking. It often tried to replicate Naver’s experience in South Korea, which did not work for Japanese consumers, as was the case with Line Pay.
Z Holdings, a subsidiary of SoftBank’s telecoms business formerly known as Yahoo Japan, faced its own challenges. It remains perpetually stuck in third place behind Amazon and Rakuten in the Japanese ecommerce market, an annoyance for Mr Son who prides himself in making investments only in No 1 players. Similar to the fate of Yahoo’s internet business in the US, which it no longer has capital ties with, Yahoo Japan has not fully capitalised on opportunities created by the smartphone era.
These struggles combined with the growing threat from China and Google, Apple, Facebook and Amazon have drawn the two rivals together in a deal they touted as “a merger of equals”.
In reality, no such deal exists but SoftBank has taken extra pains to win Naver’s approval.
In a complex structure typical of a SoftBank deal, the merger involves the creation of a 50-50 joint venture between Naver and SoftBank’s telecoms unit, which would hold a 65 per cent stake in the newly merged entity. Line would be taken private along the way via a tender offer.
In the merger of equals spirit, the board of the new company would have an equal number of directors from Line and Yahoo Japan, and be managed by two co-chief executives, one from each company, despite the large gap in size between the two.
Shin Jungho, the founder and co-CEO of Line, would become the chief product officer, giving Line a critical say in product planning and development. The listed entity after the merger, however, would be Z Holdings, which would become a consolidated subsidiary of SoftBank’s telecoms arm with effective control over Line under Japanese accounting standards.
Shares in both companies surged after the merger talks came to light last week, with CLSA touting the deal as a “match made in heaven”.
The only regret, though, is that the combination made sense more than five years ago.
Already, the threat from “Gafa” — Google, Apple, Facebook and Amazon — was serious. It was clear that the only battleground to compete against these rivals was south-east Asia. If Line and Yahoo Japan had been able to set aside their rivalries earlier, their ambition to become a global powerhouse in artificial intelligence would have sounded less like a dream.
kana.inagaki@ft.com
"line" - Google News
November 18, 2019 at 02:00PM
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