November 14, 2019 / 5:30 PM / 7 months ago

Breakingviews - SoftBank would win from $15 bln Yahoo-Line rejig

A Line character is seen at the Line Corp's headquarters in Tokyo, Japan June 2, 2016.

LONDON (Reuters Breakingviews) - Japan is overdue a digital-payments pickup: Its ageing population still settles four out of five purchases in cash. SoftBank Group’s restless 62-year-old founder Masayoshi Son is doing his bit, with a potential merger of his indirect holding in the operator of search engine Yahoo Japan and the controlling stake in Line, the country’s leading messaging and payments app.

In a characteristically multi-layered SoftBank structure, its domestic telecom unit, SoftBank Corp, owns 45% of $17 billion Z Holdings, formerly Yahoo Japan. South Korea’s Naver, meanwhile, is the 73% controlling shareholder in $10 billion Tokyo-listed Line. The app boasts 82 million Japanese users. 

A deal could involve Son and Naver Chief Executive Han Seong-sook pooling their stakes in Z Holdings and Line, Reuters reported on Wednesday. Using Tuesday’s share prices, that would equate to a roughly 50-50 joint venture worth around $15 billion, with control of Yahoo Japan and Line.

The big strategic benefit would be the creation of a formidable alliance in Japan’s mobile-payments market. Prime Minister Shinzo Abe wants to double the proportion of payments done electronically to 40% by 2025. About 37 million people have signed up to Line Pay, which allows users to pay in-store through their phones and send money to friends. That’s a hefty customer base, even if the app processed less than $8 billion of payments in the first nine months of 2019.

Yahoo Japan’s PayPay, a joint venture between SoftBank Corp and India’s Paytm, claims more than 12 million subscribers. Together, the two could take on Rakuten, an e-commerce giant with its own bank. Line’s U.S. stock surged more than 25% following news of the possible deal.

Son has plenty to gain, too. In an equal JV, SoftBank would effectively be swapping half its stake in Z Holdings for a 36% chunk of Line, whose revenue analysts reckon will grow almost three times as fast next year. Son would also boost his exposure to Line’s generally younger users, who on average sent about 400 million “stickers” – cute teddy bear icons and such – every day in 2018.

Best of all, analysts reckon Line will start generating free cash flow in 2021. Smarting from his misjudged multibillion-dollar bet on heavily money-losing office-sharing group WeWork, that could make a nice change for Son.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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