Japan's Line denies report of talks to sell stake to SoftBank

TOKYO/SEOUL Tue Feb 25, 2014 1:01pm IST

The icon of a free communication app ''Line'' is pictured on an Apple Inc's iPhone in this photo illustration in Tokyo August 14, 2012. REUTERS/Yuriko Nakao/Files

The icon of a free communication app ''Line'' is pictured on an Apple Inc's iPhone in this photo illustration in Tokyo August 14, 2012.

Credit: Reuters/Yuriko Nakao/Files

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TOKYO/SEOUL (Reuters) - Japan-based Line Corp denied a media report it was in talks to sell a stake to SoftBank Corp(9984.T) - a report that comes after big acquisitions of rival messaging app firms have fanned speculation that it too may be up for grabs.

SoftBank's founder Masayoshi Son has held talks with Line about a purchase, Bloomberg News said, citing a person with knowledge of the matter. It added that Line had also received at least one other offer for all or some of the company, prompting it to slow preparations for an IPO.

Both Line and its South Korean parent company Naver Corp (035420.KS) denied the report.

"The report is groundless. We haven't had any talks with SoftBank," said an official in Naver's investor relations team.

"There's no reason to sell a stake and no plan to sell."

SoftBank, Japan's No. 3 biggest mobile operator and a prolific investor in Internet firms, said it would not comment on speculation.

Line, one of Asia's most aggressive chat services, has been valued by analysts at roughly $14 billion but those estimates were made before Facebook Inc's (FB.O) shocking $19 billion purchase of WhatsApp last week that threw conventional methods of valuing messaging apps out the window.

The Facebook/WhatsApp deal sparked fears that Line would now find it difficult to break into key markets like the United States, causing Naver's shares to slump but they recovered some ground on the Bloomberg report, shooting as much as 9 percent higher.

Lee Chang-young, an analyst at Tong Yang Securities, said that any alliance with telecoms operators would make sense, also noting that a $900 million deal by Japanese online shopping mall Rakuten Inc (4755.T) for chat app Viber this month has raised the stakes in its home market.

"A deal with SoftBank, in particular, will help them generate synergies by combining mobile services with a messenger platform. It'll also help Line expand in the U.S. market where SoftBank is expanding aggressively," he said.

IPO APPEAL

Banking sources have said Line is preparing for an initial public offering some time this year either in Tokyo or overseas. Backing from a high-profile investor like SoftBank could increase appetite for a listing.

SoftBank, Japan's second-biggest firm by market capitalisation, has been highly acquisitive, paying $21.6 billion for 80 percent for U.S. mobile operator Sprint and keen to buy T-Mobile - a deal that has been estimated at $20 billion although it faces significant regulatory hurdles.

David Gibson, senior research analyst for games at Macquarie Securities in Tokyo, surmised that if SoftBank was interested in Line, it was most likely interested in a smaller stake.

"I would have said SoftBank would say we'll buy 10 percent and you still IPO," he said.

Line, which also has a strong presence in Thailand, Taiwan and Indonesia, had been downloaded a total of 360 million times as of February 20, the company said.

Macquarie estimates around half of the downloads are active monthly users, a figure the company does not release. WhatsApp said on Monday it had 465 million monthly active users, meaning Facebook paid around $40 per user.

Line has made more progress than WhatsApp and many other rival chat services in monetisation through games and the sale of oversized emoticons known as stickers.

"The IPO is about showing increased monetisation in Japan, and two, increased monetisation of the 75 percent of users outside Japan," said Gibson.

Line's revenue last year reached 34.3 billion yen, making it the top-grossing non-game app in 2013 in both Apple Inc's (AAPL.O) iOS store and Google Inc's (GOOG.O) Google Play store, according to marketing research firm App Annie.

A report from Citi estimates that Line's active users are worth 109,543 won due to its success in monetisation.

(Additional reporting by Hyunjoo Jin and in Seoul, Chang-Ran Kim, Reiji Murai and Yoshiyasu Shida in Tokyo; Editing by Edmund Klamann and Edwina Gibbs)

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