SoftBank-backed Yahoo Japan and messaging app Line have agreed to merge as Masayoshi Son seeks to create a south-east Asian powerhouse in data and artificial intelligence worth ¥3.3tn ($30bn).
The deal follows a long courtship of Line by Mr Son, SoftBank’s founder, who has long pitched the merger as a way to compete against bigger groups in China and Silicon Valley, according to people familiar with the discussions.
The merger, which is expected to be completed in October 2020, values Line at ¥1.3tn, creating a group with a combined market value of ¥3.3tn. The group’s $11bn in combined revenue would put it above domestic rival Rakuten with access to a growing number of mobile users in south-east Asia.
Analysts have often called for the two groups to combine, saying a deal would give Line and Yahoo Japan access to a bigger pool of data and stronger negotiating power with its advertisers.
It also strengthens Yahoo Japan’s presence in the mobile space by giving it access to Line’s 164m monthly active users in Japan, Taiwan, Thailand and Indonesia.
For WhatsApp rival Line, the merger allows it to join SoftBank’s ecosystem and benefit from its investment in AI and other technologies through the $100bn Vision Fund.
“We were driven by a sense of crisis about global competition and the pace of change in AI,” Takeshi Idezawa, co-chief executive at Line, said at a joint press conference in Tokyo. “The timing arrived for us to move on to the next phase [with this merger].”
Following news of the deal, CLSA raised its target price on Line to ¥7,500 from ¥5,000, saying the combination made “perfect sense”.
Goldman Sachs analyst Masaru Sugiyama cautioned that Line and Yahoo Japan combined would still be “far smaller” than Rakuten in terms of transaction value of their digital payments services. The two groups together would also be dwarfed by Facebook, Amazon and China’s Tencent in every measure from revenue, market value and research budget.
Makoto Kikuchi, chief investment officer at Myojo Asset Management, said: “Line can’t compete alone in this space. There is really no other option.”
Under the framework announced on Monday, Line will first be taken private through a tender offer at a proposed price of ¥5,200 a share, which represents a 13 per cent premium to the messaging app’s share price on November 13 before news of the talks broke last week.
Z Holdings, a subsidiary of SoftBank’s telecoms arm formerly known as Yahoo Japan, and Naver, the South Korean internet search group that owns 73 per cent of Line, plan to each spend ¥170bn on the tender offer.
The multi-tiered tie-up will involve SoftBank’s telecoms arm, which owns a 45 per cent stake in Z Holdings, creating a 50-50 joint venture with Naver. After the merger, Z Holdings will remain a listed entity, which will become a consolidated subsidiary of SoftBank’s telecoms arm.
Following a surge last week, shares in Z Holdings rose 1.2 per cent on Monday after the deal was formally announced, while Line climbed 2.2 per cent. Shares in SoftBank’s telecoms arm fell 0.3 per cent and Naver gained 2.9 per cent.
Mitsubishi UFJ Morgan Stanley advised Z Holdings, while Line was advised by JPMorgan. Mizuho advised SoftBank’s telecoms arm, and Naver was advised by Deutsche.
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