Line Yahoo Earnings Announcement Approaching... Naver's Response Scenarios in Focus

Ahead of Line Yahoo's Earnings Announcement on the 8th
Attention on Whether Comments on Shareholding Relationship with Naver Will Emerge
Expectations of Partial Share Sale and Technical Measures to Conclude

Attention is focused on whether there will be any remarks regarding the shareholding relationship with Naver ahead of the earnings announcements of Line Yahoo and SoftBank on the 8th and 9th. The market is offering various forecasts, ranging from partial sale of Line Yahoo shares to technical measures to conclude the matter.

Possibility of Partial Share Sale to SoftBank ‘Rises’

As the Japanese government has stepped up strong pressure, there is a forecast that Naver will sell at least some of its shares. It is unusual that the Ministry of Internal Affairs and Communications of Japan issued administrative guidance twice over personal information leaks and even mentioned reviewing the shareholding relationship. It is analyzed that Naver will lower its profile through share sales considering its future business in Japan.

Partial sale is favored over a full sale. Naver would maintain its connection with Line Yahoo while stepping down to become the second-largest shareholder. Line Yahoo is 64.5% owned by A Holdings, which was established with equal investment of 50% each by Naver and SoftBank. This means Naver holds about 33% of Line Yahoo’s shares. Considering that Line Yahoo’s market capitalization was 2.88 trillion yen (approximately 25.38 trillion KRW) as of the 7th, the value of Line Yahoo shares held by Naver is about 8.4 trillion KRW. Adding a management premium, the value is expected to exceed 10 trillion KRW.

Ahn Jae-min, a researcher at NH Investment & Securities, analyzed, "It would be a significant financial burden for SoftBank to acquire all the shares held by Naver," adding, "Since various businesses such as Taiwan, Thailand operations, Line Manga, and Naver Z are connected beyond Japan, a full sale would be difficult." He explained that it is hard to attract other investors like private equity funds (PEFs) because Line Yahoo is too large and its growth has slowed.

Even if only a portion of Line Yahoo shares is sold, changes to Naver’s global business strategy are inevitable. Line is a global messenger with over 200 million users not only in Japan but also in Taiwan, Thailand, and Indonesia. It has focused on the Southeast Asian market by linking messenger services with simple payment services, delivery, webtoons, and more. Losing control over Line could hinder its global strategy aimed at expanding influence in Asia. Naver CEO Choi Soo-yeon’s statement on the 3rd during the earnings announcement that decisions will be made according to mid- to long-term business strategies regardless of Japanese government pressure is in this context.

However, securing cash in the trillion-won range would provide room to pursue additional mergers and acquisitions (M&A). Naver’s last M&A was the acquisition of Poshmark, North America’s largest consumer-to-consumer (C2C) trading platform, for 1.7 trillion KRW in October 2022. Since Poshmark turned profitable as of the first quarter of this year, one year after acquisition, Naver could take the next step.

Could End with Technical Measures

There is also a forecast that the issue will be resolved without Naver selling its shares. Administrative guidance does not have legally binding force. The Japanese government seems to have recognized this and is stepping back. At a press conference on the 7th, Chief Cabinet Secretary Yoshimasa Hayashi said, "Administrative guidance requested strengthening safety management and reviewing security governance," adding, "It is important that the management of subcontractors functions appropriately regardless of whether the company is from a specific country."

Experts view that handing over Line shares in this situation would set a bad precedent. Professor Lee Sung-yeop of Korea University Graduate School of Technology Management said, "If other Southeast Asian countries try to operate Line directly through their domestic companies, the Japanese case could be used as a precedent," expressing concern that "our platform, which is the first case to go overseas, could have its foundation completely shaken."

Forcing a share sale could also escalate into a diplomatic issue between Korea and Japan, which is another variable. Choi Seung-ho, a researcher at Sangsangin Securities, said, "The Korean government is interested in the matter, and a forced sale order could lead to diplomatic friction," viewing the possibility of a share sale as low.

Ultimately, the focus is on taking technical measures such as separating Line Yahoo’s system as much as possible and closing the issue. Researcher Sa Gong-mok of the Korea Institute for Industrial Economics & Trade said, "Since Korea-Japan relations are not bad and communication channels are open, if diplomatic efforts are made, it can be resolved well."