Investors welcomed plans for a merger to create an internet-services giant in Japan controlled by SoftBank founder Masayoshi Son, but Yahoo Japan and chat app Line face challenges combining their businesses.
Japanese SoftBank (SoftBank) founder Son Masayoshi (Masayoshi Son ) plans to create an Internet giant in Japan through mergers. The move was welcomed by investors. However, Yahoo Japan and chat application Line face many challenges in business integration.
A person involved in the discussions said Yahoo Japan, an internet portal affiliated with SoftBank Group Corp., and Line Corp. were likely to reach a merger deal this month. The companies confirmed merger talks and said nothing has been decided.
A person involved in the merger According to negotiators, SoftBank's Internet portal Yahoo Japan and Line may reach a merger agreement this month. Both parties confirmed there were merger talks but said no resolution had been reached.
Shares of Yahoo Japan's parent rose 16.9% in Thursday trading in Tokyo and Line was up 15.4%, bringing the combined market capitalization of the two companies above $30 billion. Analysts said a deal could give Line chances to monetize its user base of tens of Millions of Japanese and other Asians, most of whom pay little or nothing using the app, and Yahoo Japan could expand the reach of services such as shopping.
1 Shares of Yahoo Japan's parent company rose 16.9% on the Tokyo Stock Exchange on November 14, Line It rose 15.4%, making the combined market value of the two companies more than 30 billion. Line has tens of millions of users in Japan and other Asian regions, but most users use Line for free or at a low cost. Market analysts said that this transaction will help Line monetize user resources. At the same time, it can help Yahoo Japan expand the user scope of Internet services such as shopping.
"It's a fast pass for Yahoo to access Line's young users to expand its business, while Line can leverage a wide range of Yahoo services to become profitable," said Ryotaro Sawada, an analyst at Ace Research Institute.
Market research company Ace Research Institute analyst Ryotaro Sawada said: "Yahoo can quickly enter Line's young user market, and Line can make profits through Yahoo's many services."
SoftBank this month reported large losses connected to its investments in shared -office provider WeWork and other startups, prompting an expression of regret from Mr. Son, the billionaire tech investor who has poured money into Silicon Valley through his $100 billion Vision Fund. However, Mr. Son said he wouldn't shy away from making new investments. Hurdles to the latest SoftBank deal include figuring out a power balance that satisfies both Mr. Son and Line parent Naver Corp. of South Korea. The person involved in the discussions said the sides are looking at an arrangement under which SoftBank and Naver would each own 50% of a new holding company. That company would in turn control Z Holdings Corp., currently Yahoo Japan's parent, with Yahoo Japan and Line operations housed separately under Z Holdings.
SoftBank wants to gain greater control of Line in years to come, the person said.
SoftBank announced this month that it had suffered huge losses in investments in other start-up companies such as the shared office company WeWork, prompting Son Masayoshi to issue an apology statement. Son is worth hundreds of millions and mainly invests in the technology industry. He has previously invested heavily in Silicon Valley through his Vision Fund (Vision Fund), which has a fortune of US$100 billion. However, Son has previously stated that he will not shrink from new investments. The obstacle to SoftBank's latest merger deal is to come up with a best-of-both-worlds approach that would satisfy both Son and Line's parent company, South Korea's Naver Group, to achieve a balance of power.The above-mentioned people involved in the negotiations said that the two parties are discussing the establishment of a new holding company, with SoftBank and Naver each holding 50% of the shares. The company will control Z Holdings, the parent company of Yahoo Japan, while the businesses of Yahoo Japan and Line will be managed by Z Holdings respectively. The person said SoftBank hopes to gain greater control over Line in the next few years.
Another challenge is the two companies' focus on the Japanese market, where the population is shrinking and growth prospects are limited. The market for the services they offer—such as texting, internet shopping and online financial services—is already dominated in most other countries by larger rivals such as Amazon.com Inc. and Facebook Inc.
Another conundrum is that both Yahoo Japan and Line are focusing on Japan, a market with a shrinking population and limited growth prospects. The two companies offer services such as text messaging, online shopping and online financial services that are already monopolized by larger rivals such as Amazon and Facebook in most other countries.
Still, analysts said the new entity, if designed well, could become Japan's first “super app,” a gateway on smartphones for a broad range of everyday needs. That model has driven growth for China's Tencent Holdings Ltd. and Alibaba Group Holding Ltd. Tencent's WeChat app for chatting with friends spawned a payment service, WeChat Pay, that along with Alibaba's Alipay is now almost universally used for retail purchases in China.
However, some analysts said that if arranged properly, the newly established company is expected to become Japan's The first "super app" - becoming the entrance to various daily needs. It is this model that drives the development of Tencent and Alibaba . Now, almost all purchases in China use WeChat payment and Alipay.
Analysts described mobile payments as one of the most promising areas for the merger, but also hard to carry out. Yahoo and Line each have their own smartphone-payment platforms in Japan. Many others are competing for business too, forcing the companies to offer users generous bonuses.
Analysts said that mobile payment is the most promising in this merger, but it is also difficult to implement. Yahoo and Line both have their own smartphone payment platforms in Japan. Other companies are also competing for this business, forcing both companies to provide generous benefits to users.
Goldman Sachs analyst Masaru Sugiyama estimated that the operating loss at the payment app affiliated with Yahoo Japan would top $700 million this fiscal year, and he said Line's operating loss in noncore businesses including payments would be nearly as large this year. Line reported a net loss of ¥40 billion ($368 million) in the January-September period.
Masaru Sugiyama, an analyst at Goldman Sachs, estimates that in fiscal 2019, Yahoo Japan’s payment application operating loss will exceed 700 million US dollars, Line's operating losses in non-core businesses (including payment applications) are also close to this figure. The financial report shows that Line suffered a net loss of 40 billion yen ($368 million) from January to September.
“Some hard work would be necessary for the two companies to merge their digital payment services before we see real synergy,” said Morningstar Research analyst Kazunori Ito.
Morningstar Research analyst Kazunori Ito ) said: “The two companies will need to put a lot of effort into merging their digital payment services before there are real synergies.”
Yahoo Japan—which no longer has a capital connection to the U.S. Yahoo website owned by Verizon Communications Inc.—is an internet portal with more than 50 million users who tend to be older and check the site's retro-looking home page for news headlines The company's recently announced acquisition of online fashion retailer Zozo Inc. was aimed at attracting younger users.
Yahoo Japan no longer has capital ties with Verizon Communications Inc.'s Yahoo America, a portal with more than 50 million users. , these users are generally older and still use the "classical" homepage to view news. Yahoo Japan recently announced the acquisition of fashion e-commerce Zozo, which is intended to attract young users.
Translator: Editor of the Translation Team of Central University of Finance and Economics
. ：Fanbajun
Source: Wall Street Journal
