Potential Stake Sale Discussions Between Naver and SoftBank
In a recent development, the Korean internet company Naver is contemplating the sale of its stake in the mobile messaging app Line, which is particularly popular in Japan. The decision comes amid rising governmental pressure from Japan, coupled with concerns from local business partners. Officials and industry experts suggest that Naver might divest a portion of its shareholding in LY Corp., the entity behind Line, to mitigate a situation that has sparked diplomatic tensions between Korea and Japan.
Naver and SoftBank’s joint venture, A Holdings, which was established in 2021, holds a substantial 64.5 percent of LY Corp. This venture is the result of a business integration that took place in 2019, further cementing the service’s growth that had begun with Naver’s development of Line in 2011.
According to Douglas Kim, an analyst from the Singapore-based investment research firm Smartkarma, Naver might lean towards selling approximately 20-30 percent of its stake in A Holdings. While Naver could pursue legal or political channels to maintain its 50 percent share, the likelihood of this happening seems slim due to the potential backlash from Japanese authorities.
The pressure on Naver intensified following a data breach incident in November that compromised over half a million cases of personal information on Naver Cloud’s server. This prompted Japan’s Ministry of Internal Affairs and Communication to request a review of LY Corp.’s capital ties with Naver, not once but twice in the recent months of March and April.
In an unfolding response, LY Corp. CEO Takeshi Idezawa announced the company’s plans to phase out its consignment relationship with Naver and move towards technological independence. This statement was closely followed by the removal of Shin Jung-ho, the only Korean board member and Chief Product Officer, from LY Corp.’s board, which now consists solely of Japanese members.
Adding to the developments, SoftBank has begun urging Naver to reduce its stake by July. SoftBank CEO Junichi Miyakawa clarified that discussions with Naver are ongoing, aiming for early July to negotiate, but no agreement has been finalized.
Naver, in its official statement, confirmed that it is in discussions with SoftBank and remains open to all possibilities, including the sale of its stake in LY Corp. The company emphasized its intention to strategically review its resource utilization and investments to bolster future growth and enhance shareholder value, though it has refrained from sharing further details until a conclusion is reached.
The Korean government has also weighed in, expressing support for Naver’s position and promising to counteract any undue pressure on Korean companies’ overseas ventures. Kang Do-hyun, the second vice minister of science and ICT, mentioned the government’s readiness to back Naver in fortifying information security should the company choose to maintain its LY Corp. stake.
Line remains a dominant force in the instant messaging sector in Japan, boasting 96 million monthly active users, and has broadened its horizon into fintech and e-commerce. This popularity extends to other Asian markets like Taiwan, Thailand, and Indonesia, suggesting that Naver’s potential divestment from A Holdings could have regional implications.
Experts believe that even if Naver proceeds with the sale of its stake in LY Corp., the company’s valuation is likely to remain unaffected. Japan accounts for merely 7 percent of Naver’s sales, which translates to 679.9 billion won (7 million). As per a Smartkarma research report, Naver’s exact divestment proportion remains uncertain, but retaining a minority stake is a possibility.
Ahn Jae-min, an analyst at NH Investment & Securities, echoes the sentiment of a partial divestment, which would allow Naver to remain as the second-largest shareholder and preserve its relationship with LY Corp. This could lead to Naver securing funds for share buybacks, dividends, or further mergers and acquisitions, potentially driving a positive trend in Naver’s stock price.
