SoftBank to create Japan internet giant to battle rivals

Bloomberg

Masayoshi Son, after backing startups around the world, is engineering a complex deal on his home turf to create a national champion that can more effectively compete with global rivals like Google and Amazon.com Inc.
Son’s SoftBank Group Corp plans to combine its Yahoo Japan internet business with Line Corp in a deal that values the country’s leading messaging service at $11.5 billion. SoftBank and South Korea’s Naver Corp will take Line private and then fold Line and Yahoo Japan into a new joint venture. The deal requires shareholder approvals and is scheduled to close by October 2020.
The two companies said the combination is driven by a sense of crisis that global giants are increasing their grip on the technology industry and countries like Japan risk falling behind.
Together, Line and Yahoo Japan, which now operates as Z Holdings Corp, will be able to share engineering resources, access broader sets of data and invest more in areas like artificial intelligence, the chief executive officers said in a Tokyo press conference.
“The internet industry often operates on the winner-takes-all principle and the strong only get stronger,” said Line co-CEO Takeshi Idezawa. “Even combined, our market capital, business scale and R&D expenditures are dwarfed by the global tech giants.”
At the event, the CEOs gave unusual emphasis to their corporate vulnerabilities and the incumbent risks for Japanese consumers, perhaps in an attempt to preempt government scrutiny of a deal that will combine two of the country’s largest internet companies. The chiefs said they need to join forces to mount a serious challenge to much larger rivals from the US and China.
“We want to become an AI tech company that leads the world from Japan,” said Kentaro Kawabe, CEO of Z Holdings. Kawabe wore a bright green tie, Line’s trademark hue, while Idezawa donned one in Yahoo Japan red.
Under the proposed transaction, Z Holdings and Naver will buy out Line’s public shareholders in a tender offer at a projected 5,200 yen per share, a 13% premium to Line’s share price before news of the talks.
Each company plans to spend 170 billion yen ($1.56 billion) on the bid. Naver already owns 73% of Line, while SoftBank Corp, the domestic telecom arm of Son’s business empire, holds a roughly 44% stake in Z Holdings.
The companies have been in talks about a possible alliance since June and settled on the idea of a merger in August, according to the statement.