Naver is about to lose management rights to ‘Line’ to Softbank… Pressure from Japanese government to sell shares

Naver is under pressure to sell its stake in Line Yahoo, the operator of Japan’s national messenger service ‘Line’, which it has joint management rights with Softbank. In the wake of the personal information leak incident, the Japanese government demanded that Line Yahoo reduce its dependence on Naver, a Korean company. There are concerns that Naver may be losing the line management rights it has built for 13 years.

According to Japanese media such as Kyodo News on the 25th, Softbank is pursuing discussions to purchase shares of A Holdings, an intermediate holding company that holds a 65% stake in Line Yahoo, from Naver. Kyodo News said, “Softbank is trying to purchase a certain percentage of stocks because acquiring a small number of stocks is not enough for fundamental reform of Line Yahoo,” and “It is trying to hasten discussions by using the announcement of financial statements on the 9th of next month as a turning point.” “He said.

Naver and Softbank each own 50% of A Holdings, the majority shareholder of Line Yahoo. Both companies are the actual parent companies of Line Yahoo. If Softbank acquires a sufficient level of A Holdings stock from Naver and becomes its own majority shareholder, Naver will lose its management rights to Line.

Naver launched Line service in Japan in June 2011. In March 2021, the management of Line and Softbank’s portal Yahoo Japan was integrated and A Holdings was launched. There are approximately 96 million Japanese users who use Line at least once a month. It is also targeting the markets of Thailand, Taiwan, and Indonesia, and the number of users worldwide reaches 200 million.

The crisis began with the Line personal information leak incident. Last November, Line Yahoo announced that 440,000 pieces of Line user information may have been leaked through its affiliate, Naver Cloud. It was explained that an employee of a company entrusted with Naver cloud work suffered a cyber attack, which also caused damage to Line Yahoo, which shares some systems with Naver. Afterwards, the scale of information leaks increased to 510,000.

Last month, Japan’s Ministry of Internal Affairs and Communications launched an administrative guidance requesting improvement in the management system, including a ‘reexamination of the relationship between Naver and capital.’ It is said that Line Yahoo is overly dependent on Naver, which has entrusted system work, and has insufficient cyber security measures. On the 16th of this month, Line Yahoo announced that it would conduct a second administrative guidance, saying that the measures to prevent recurrence of accidents were insufficient. The Japanese media also commented that it was unusual for the Ministry of Internal Affairs and Communications to issue administrative guidance twice, including a review of capital relations. A domestic industry official said, “The Japanese government is showing a national-first policy in that it is demanding a review of capital relations in addition to strengthening management and supervision.”

A Naver official said, “Nothing has been confirmed yet,” and “We are working together to strengthen line security.”