SoftBank with 50% Stake: "Line Yahoo is a Subsidiary"... Naver's Position Narrows

SoftBank Announces Subsidiary Inclusion of Line Yahoo and Parent Company A Holdings Subsidiary
"Subsidiary Inclusion Based on Mutual Agreement of Both Companies"

Naver has been classified as an investment in a separate corporation rather than a subsidiary for A Holdings, the parent company of Line Yahoo, since 2021. Naver holds a 50% stake in A Holdings, while the Japanese company SoftBank, which owns the remaining 50%, began designating this company as a subsidiary in its disclosures around the same time. The two companies decided this arrangement through an agreement at that time, but with the recent Line Yahoo controversy, there is an interpretation that Naver ultimately made a decision that did not yield practical benefits. This is because SoftBank appears to be more involved in the management of Line Yahoo, and as a Japanese company, it is believed to support the Japanese government's rationale for strengthening its domestic control.

According to Japan's Electronic Disclosure System (EDINET) on the 8th, SoftBank Group classified A Holdings, the parent company holding 64.5% of Line Yahoo's shares, as a subsidiary in its annual securities report for the period from April 1, 2022, to March 31, 2023.

SoftBank and Naver each hold a 50% stake in A Holdings. Although their stakes are equal, SoftBank also listed Z Holdings, Line, and Yahoo as subsidiaries along with A Holdings. Z Holdings, Yahoo, and Line merged in October last year to form Line Yahoo, with A Holdings as the largest shareholder. SoftBank explained in a note, "Although the ownership ratio of voting rights in (A Holdings) is less than 50%, we have determined that we control it and therefore consolidated it as a subsidiary."

SoftBank's disclosure of A Holdings and subsidiaries such as Line Yahoo as subsidiaries was possible due to an agreement with Naver. When the integrated corporation was launched in 2020, SoftBank requested Naver to allow A Holdings and Line Yahoo to be consolidated as subsidiaries of the group. A Naver official stated, "At the time of management integration, we agreed to a 50-50 shareholding ratio but to have SoftBank consolidate the subsidiaries," adding, "Subsequently, with the exclusion of the Line business segment, there was an effect of increasing the operating profit of Naver's business segment."

From the 2021 business report onward, Naver only listed A Holdings under investments in other corporations and did not include it in the list of consolidated subsidiaries or affiliates. Conversely, SoftBank has disclosed A Holdings as a subsidiary starting from its annual securities report for the period from April 1, 2020, to March 31, 2021.

Although Naver agreed to disclose A Holdings as a subsidiary of SoftBank, recent circumstances have led to evaluations that it "effectively lost ground in terms of justification." Since Line Yahoo is designated as a subsidiary of SoftBank, Naver's position, despite holding an equal 50% stake, has relatively diminished.

In Japan, the perception that "the messenger Line is Japanese" has already taken root. A blog post titled "Is Line Japanese or Korean?" published in January 2013 by Nihon Keizai Shimbun stated, "Line is a service planned and developed by Naver Japan under NHN Japan," and added, "Although it is a Korean company's Japanese subsidiary and sometimes mistaken as Korean-made, it was planned and created in Japan, making it a 'purely domestic product'."

Professor Hwang Yong-sik of Sejong University's Department of Business Administration explained, "In the event of issues related to shares or management rights, the joint venture SoftBank should represent the positions of both parties and reduce risks, but so far, it seems this has not happened," adding, "We have no choice but to consider SoftBank's intentions." Professor Hwang further stated, "Because Line Yahoo is SoftBank's company, it has become easier to pursue the intention of strengthening Japan's influence," and added, "SoftBank's influence and leverage over Line Yahoo can be used as a bargaining chip."