Bloomberg News

SoftBank Said to Seek Stake in Naver’s Line Messaging Unit (3)

February 25, 2014

Line App

Line Corp.'s internet messaging and calling service is displayed on an iPhone in an arranged photograph in Hong Kong. Photographer: Brent Lewin/Bloomberg

SoftBank Corp. (9984) is seeking to buy a stake in Line Corp., the mobile-messaging service controlled by South Korea’s Naver Corp., people with knowledge of the matter said. Naver shares jumped.

Line has received at least one other offer for all or some of the company, prompting it to slow preparations for an initial public offering, said two of the people, asking not to be identified as the information is private. Tokyo-based Line, which has about 340 million users, may be valued at as much as $14.9 billion, according to BNP Paribas SA estimates.

Services that rely on Internet access to let users send messages or make calls for free are displacing traditional text-messaging services offered by wireless carriers such as SoftBank. This month Facebook Inc. (FB:US) said it would pay as much as $19 billion to acquire WhatsApp Inc., just days after Japan’s Rakuten Inc. (4755) agreed to pay $900 million for rival Viber.

“Traditional telecom calling services are in decline,” said Naoshi Nema, an analyst at Cantor Fitzgerald LP in Hong Kong. “If SoftBank takes a stake in Line they are going to maintain traffic and they can make their money through gaming or their other content businesses.”

Naver shares jumped 7.5 percent to 735,000 won at the close in Seoul, the most in more than four months. SoftBank shares rose 4.1 percent in Tokyo.

Nam Ji Woong, a spokesman for Naver, said the company hasn’t received an investment offer from SoftBank. Fumiko Hayashi, a Tokyo-based spokeswoman for Line, said the story wasn’t accurate and declined to elaborate. Mitsuhiro Kurano, a Tokyo-based spokesman for SoftBank, said the company doesn’t comment on rumors and speculation.

Japan, India

SoftBank’s founder, billionaire Masayoshi Son, has held talks with Line about a purchase, one person said. Japan’s No. 3 wireless company, which also controls Sprint Corp. in the U.S., has been acquiring stakes in providers of content including China’s Wandoujia and Finnish game maker Supercell Oy.

While Line is still aiming for an initial public offering later this year, it wants to take some time to evaluate the proposals, another person said. Selling a stake to a larger company could help Line increase its valuation ahead of the share sale, according to that person.

Line is the No. 1 mobile messenger service in Japan, Taiwan and Thailand -- ahead of Facebook Messenger in all three countries, according to a Feb. 20 report from Samsung Securities Co. citing data from researcher App Annie Ltd. Line also ranks highly in Chile and Mexico, where it competes with Microsoft Corp.’s Skype, and in South Korea where it competes with KakaoTalk.

Sticker Sales

“Line has tremendous momentum right now,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “They have a lot of users and they are using it actively.”

SoftBank is the largest shareholder in GungHo Online Entertainment Inc. (3765), the maker of games including “Puzzle & Dragons,” and Yahoo Japan Corp., which operates the nation’s most-visited Web portal. Purchasing a stake in Line would allow SoftBank to market its games to the messaging service’s large base of users, said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. Shares of GungHo rose as much as 9.4 percent in Tokyo trading.

Tango, a Mountain View, California-based messaging and gaming service, has also fielded takeover advances, co-founder Eric Setton said this month. The company is valued at more than $1 billion, a person with knowledge of the matter earlier.

India Growth

Potential buyers of messenger software startups could include Microsoft (MSFT:US), Google Inc. and Yahoo! Inc. (YHOO:US), as well as major phone carriers or infrastructure providers like Comcast Corp., Brian Blau, a social-media analyst at Gartner Inc., said earlier this month. Microsoft and Google had both expressed interest in acquiring WhatsApp, people with knowledge of the matter have said.

Line generated about 34.3 billion yen ($335 million) in revenue last year from its core business by selling games and stickers -- cartoons or illustrations that users can send to friends, Line said this month.

“The strength of Line is the number of users,” said Tomoaki Kawasaki, an analyst at IwaiCosmo Holdings Inc. in Tokyo. “If SoftBank partners with Line, both of their businesses would attract more customers.”

Growth in India and Latin America could help its registered user base rise to 525 million by the end of 2014, BNP Paribas analyst Justin Lee wrote in a note to clients last week. Lee estimates Line may be worth as much as 16 trillion won ($14.9 billion) in a year’s time. The analyst rates Naver at buy.

To contact the reporters on this story: Zijing Wu in Hong Kong at zwu17@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net


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