SoftBank to buy part of Naver's Line stake by July: CEO Miyakawa

TOKYO – SoftBank Corp., which runs LY Corp., the operator of the popular mobile messenger app Line in Japan, said on Thursday it is in talks with its South Korean partner Naver Corp. over the fate of their joint management of LY.

Junichi Miyakawa, chief executive of SoftBank Corp., said during its earning briefing that the two companies are in negotiations toward Naver reducing its capital control in Line.

"At LY's request, we are reviewing our capital structure and business strategies. At this point, no agreement has been reached. If there is anything to report, we will quickly disclose it,” he said.

The CEO said the two parties are working to reach an agreement by July.

His remarks came amid growing pressure from the Japanese government on Naver as LY Corp. has publicly called on the Korean tech giant to sever financial ties by selling down its stake in LY.

On Wednesday, Takeshi Idezawa, chief executive of LY, said during a conference call on its first-quarter earnings that LY is “strongly requesting its largest shareholder Naver to change its capital ties.”

“The government pointed out that we could demand that Naver strengthen its management of LY’s information technology infrastructure. In that regard, we strongly ask Naver to change its capital ties (with us). I understand Naver and SoftBank are in discussions over the matter," he said.

Analysts said the CEO’s remarks represent the Japanese government’s pressure on the South Korean company to shed its control over the popular mobile messenger app.

ONLY KOREAN BOARD MEMBER STEPS DOWN

On Wednesday, LY held a board meeting during which it announced that Jungho Shin, LY’s chief product officer (CPO) and its only Korean board member, would step down from the board, although he would continue to hold his CPO post.

His resignation will be official after approval at LY’s shareholders’ meeting in June.

Dubbed “the Father of Line,” Shin is said to have played a critical role in leading the messaging app’s successful launch in the late 2000s.

Idezawa said the board has decided to cut two internal director seats while appointing one more outside director, aiming for a more independent management structure and strengthened security governance for LY.

The CEO said Shin’s resignation should not be seen as a dismissal. However, industry officials said he was seemingly held accountable for LY’s data leak last November, which triggered the Japanese government’s pressure on Naver.

RARE STATE INTERVENTION IN CORPORATE AFFAIRS

In March, Japan’s Ministry of Internal Affairs and Communications asked LY, operator of the Line app and internet portal Yahoo Japan, to reduce its reliance on Naver and review its relationship with Naver.

The comments were part of the ministry’s guidance against LY following a series of personal information leaks online, including an incident in November where LY’s servers were hacked and Line app user information was leaked.

According to several Japanese media reports, the ministry cited LY’s heavy dependence on Naver in terms of systems and network configurations among the causes of the incident.

While the data breach is cited as one of the key reasons behind the Japanese government’s rare intervention in the corporate issue, industry watchers say Japan may be attempting to seize Naver's management rights.

LY is majority-owned by A Holdings, a 50-50 joint venture between Naver and Japan's SoftBank Corp., a telecommunications company affiliated with the tech conglomerate SoftBank Group.

If SoftBank acquires just one more share in A Holdings, it would be able to control LY.

LY TO CUT ITS INFRASTRUCTURE TIES WITH NAVER

LY said it will gradually separate its information technology infrastructure with Naver to strengthen its systems security.

Last week, Naver Chief Executive Choi Soo-yeon said Naver is ready to accept Japan’s request to sever technology ties with LY, although it is undecided on its relationship with the Line operator.

“An administrative directive demanding a reduction in (capital) control over a company is highly unusual,” she said during a conference call with analysts after announcing Naver’s first-quarter earnings in Seoul. “That is a matter to be decided based on our mid- to long-term business strategy. We have yet to determine our stance on the matter.”

She said Naver is in “close communication” with the Korean government, including the Ministry of Science and ICT, over how to handle the issue.

Korea’s Science and ICT Minister Lee Jong-ho said on Wednesday he is monitoring the situation and discussing countermeasures with Naver.

He said the ministry plans to address the matter with a priority on the fair treatment of Korean companies’ overseas operations and their investments abroad.

“We are in close discussions with Naver to ensure its authority is protected to the fullest extent possible,” he said.

(Updated with the SoftBank CEO's remarks on talks with Naver)

Write to Ji-Eun Jeong and Il-Gue Kim at jeong@hankyung.com

In-Soo Nam edited this article.