SoftBank to create $30b firm with Yahoo Japan, Line merger

Japan’s SoftBank Corp plans to merge internet unit Yahoo Japan with messaging app operator Line Corp to create a $30 billion tech giant, as it bags struggling internet companies to bulk up against rivals like Rakuten Inc.

The telco in a statement said Yahoo Japan, which last month changed its name to Z Holdings Corp, will merge with Line, owned by South Korea’s Naver Corp, in a deal to be completed in October 2020.

The companies aim for a definitive agreement by next month in a transaction that will see SoftBank Corp and Naver form a 50:50 venture that will control Z Holdings, which will in turn operate Yahoo Japan and Line.

SoftBank Corp and Naver, which owns 73 per cent of money-losing Line, plan to launch a tender offer for Line’s remaining shares at 5,200 yen each - a 13.4 per cent premium to the shares’ price before news of the merger broke. Line’s shares were up 2.6 per cent at 5,180 yen in early Tokyo trade on Monday.

Line has been looking for growth through expansion into areas such as QR code payments with Line Pay, but has been squeezed because of its limited funds and heavy-spending peers including SoftBank, which has a rival service called PayPay.

The merger deal is the latest example of consolidation in Japan’s technology industry. SoftBank this month completed its acquisition of online fashion retailer Zozo Inc, whose founder and ex-Chief Executive Yusaku Maezawa sold down his stake following a series of missteps.

Coming at a time of heightened political tension between Japan and South Korea, the merger might be the two countries’ most significant economic cooperation of the last decade, Jaewoong Lee, a South Korean serial entrepreneur and founder of Naver rival Daum wrote on his Facebook page late on Sunday.

Z Holdings will continue to be a consolidated subsidiary of SoftBank Corp, which is a unit of investment conglomerate SoftBank Group Corp. Z Holdings and Line will hold a news conference at 0800 GMT.

SoftBank said in a statement that Yahoo Japan, which last month changed its name to Z Holdings, will merge with Line, owned by South Korea’s Naver Corp, in a deal to be completed by October 2020.

The companies aim for a definitive agreement by next month in a transaction that will see SoftBank Corp and Naver form a 50:50 venture that will control Z Holdings, which will in turn operate Line and Yahoo. SoftBank Corp is a unit of investment behemoth SoftBank Group Corp. SoftBank Corp and Naver, which owns 73 per cent of money-losing Line, plan to launch a tender offer for Line’s remaining shares at 5,200 yen per share, a 13.4 per cent premium to the share price before news of the merger broke. Line’s shares were up 2.6 per cent at 5,180 yen in early trading on Monday.

Z Holdings will continue to be a consolidated subsidiary of SoftBank. It will hold a press conference with Line at 0800 GMT.

SoftBank reported its first quarterly loss in 14 years, whiplashed by an $8.9 billion hit at its giant Vision Fund and marking a rare, humbling moment for CEO Masayoshi Son over his backing of troubled startup WeWork.

The scale of the loss shows the risks in Son’s strategy of splashing out big on cash-burning startups. It has also cast a pall on his efforts to raise another massive fund.

WeWork’s spectacular flame-out this year has also raised questions about Son’s judgement in backing unconventional tech founders such as WeWork’s Adam Neumann. Softbank was forced last month to spend more than $10 billion to bail out the office-sharing startup after its IPO attempt flopped.

Son, 62, told a news conference following the results that his judgement around WeWork was “not right” in many ways, and that he had turned a blind eye to problems with Neumann in areas such as corporate governance.

Still, he was defiant that WeWork was still a solid business, saying there would be a “hockey stick” recovery in its profits eventually.

SoftBank Group Corporation said its $100 billion Vision Fund contributed an operating loss of 970 billion yen ($8.9 billion) during the period, and an unrealised loss of 537.9 billion yen for the six months of the year as the value of its tech bets such as WeWork and Uber tumbled.

Overall, the group posted an operating loss of 704 billion yen ($6.5 billion) in the July-September quarter compared to a 706 billion yen profit in the same period a year earlier and a 48 billion yen loss forecast by analysts, according to Refinitiv. It wrote down the value of its investment in WeWork by $3.4 billion in the second quarter and expected the loss to widen to $4.6 billion in the current fiscal year.

Reuters