Naver’s Line, Yahoo Japan to become one family to fight US, China on internet front

Naver Monday pronounced an engagement between its Japan-focused messenger operator Line Corp. and Yahoo Japan Corp. in a stunning match of a South Korean and Japanese entity at a time ties between the neighbor countries are at its worst to form a dream Asian team against multinational giants like Google and Apple as well as Chinese names.

Naver disclosed that Line has reached a basic merger deal with Yahoo Japan. Under the deal, Naver and Japanese tech conglomerate SoftBank Group Corp., the holding firm of Z Holdings Corp. that manages Yahoo Japan, will set up a 50-50 joint venture that would hold a controlling stake in Z Holdings. A formal contract will be signed next month. Financial terms of the deal were not revealed.

Naver holds more than 70 percent stake in Line and SoftBank 40 percent in Yahoo’s parent company Z Holdings.

Line, Yahoo Japan portal, commerce platform Yahoo Shopping and Zozo, financial services provider Japan Net Bank will all become one family under Z Holdings. The merged entity will have the largest user base in Japan and Asia.

Naver shares that have been flying since last week on the speculation of a merger ended Monday 3 percent higher at 178,500 won ($153).

The merger is a rare alliance between two most competitive rivals on the tech front. The duo could pose as a formidable competition to U.S. and Chinese internet giants dominated by Google, Apple, Facebook, and Amazon, as well as Baidu, Alibaba, Tencent, and Huawei. Industry insiders noted that it would be challenging for either Line or Yahoo Japan to challenge the global online giants alone.

The merger is expected to bring synergy in various areas including e-commerce and payment services sectors.

Currently, Yahoo Japan provides Paypay service and Line, Line Pay. The two companies were fierce competitors in the payments market until couple of months ago, providing cash back and various point benefits to consumers. The merger is expected to allow the Line and Yahoo Japan to shake up the e-commerce scene in Japan and Asia.

As a leading messenger app in Japan with 80 million users, Line has been engaged in payment service. Yahoo Japan commanding 50 million user base has also been expanding its service to include mobile payments and e-commerce business. The merger between the two companies will allow a platform with massive user base of 100 million.

Last year, Z Holdings raised 954.7 billion yen in sales, and Line, 207.1 billion yen. Their combined revenue tops Japanese shopping portal Rakuten which had sales of 1.1 trillion yen.

The merger is also expected to help local players to compete against global platform operators such as Google and Facebook in Asia, especially in the artificial intelligence (AI) sector.

“The latest business integration will help speed up growth in financial technology sector and raise possibility in entering into new business areas via technology,” Naver said “We expect [the merged entity] to become a new AI-based technology company capable of competing with global platform operators.”

Naver has been eagerly investing in the AI field. In a keynote address at DEVIEW 2019, Korea’s leading annual tech conference held last year in southern Seoul, Seok Sang-ok, head of Naver Labs, said that the company plans to come up with aggressive investment plans to create new global scene led by Korea to compete with AI technology industry dominated by U.S. and China. He presented a new plan called Eurasia AI Research Belt.

“The research belt will be a new global trend that is able to help come up with a roadmap to compete against technologies led by Google, Amazon, Facebook, and Apple, and Baidu, Alibaba, Tencent, and Huawei,” he said.

In a meeting with President Moon Jae-in in July, SoftBank founder Masayoshi Son also said “AI will bring biggest innovation in the history of mankind” and that Korea too should focus on the sector.

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