HONG KONG (Reuters Breakingviews) - A Japanese super-app sounds super-cool but it will be super-hard to create. SoftBank and South Korea’s Naver want to merge Yahoo Japan and Line in a complex, multi-step, $30 billion deal that portends an all-in-one mobile service combining payments, messaging and more. Investors are excited about the idea, but there are a great many hurdles to success.
Masayoshi Son’s $66 billion telecoms operator, SoftBank Corp, confirmed plans on Monday to unite the internet arm it controls with the country’s top chat app. The market values of both Z Holdings, formerly known as Yahoo Japan, and Tokyo-listed Line, which Naver controls, jumped by around 10% when news of a possible transaction first surfaced last week.
The benefits of putting them together look appealing. They have competing payments apps, for example. Together, they would have an estimated 49 million users and should be able to cut costs in areas such as marketing and promotion. The success of WeChat, owned by China’s Tencent, also makes the prospects of replicating a similar feat in Japan even more tantalising.
There is no app to handle the contortions involved in the six-step deal. First, SoftBank and Naver will have to buy out the near-28% of Line shares the South Korean parent does not already own. They are offering just a 13% premium, in cash, which values the unprofitable Line at $11.5 billion.
More significantly, shareholders of Z Holdings, in which SoftBank holds a 45% stake, will also have to sign off. A restructuring, in which Line would be injected into the firm using a share swap, will dilute earnings at the otherwise cash-generative company. Those investors may yet balk.
Regulators will have to give their blessing, too. Besides potential competition concerns, diplomatic relations between Japan and South Korea have deteriorated recently over a decades-long wartime dispute. Hawks on both sides could derail a deal on the back of national security concerns.
And even if SoftBank and Naver can somehow negotiate all those challenges, they will wind up with a 50-50 joint-venture. Companies struggle to manage such arrangements in the best of circumstances. To pull this one off with any degree of success may take some kind of Superman.
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