SoftBank to Merge Yahoo Japan and Line Messenger for AI Edge

In a concerted effort to augment its AI capabilities, SoftBank Group Corp. SFTBY recently unveiled plans to merge its Yahoo Japan Internet business with messaging service provider LINE Corporation LN. The deal will create a $30 billion tech behemoth in a deal that is likely to be completed in October 2020.

Yahoo Japan, which had renamed itself Z Holdings Corp last month, aims to ink a definitive agreement with Naver Corp. that owns the majority share in Line, by the end of 2019 to form 50:50 joint venture (JV) firm. This JV will then control Z Holdings with Yahoo Japan and Line as wholly owned subsidiaries.   

The transaction, subject to mandatory closing conditions and shareholder approvals, will help both Softbank and Line to pool their resources for gaining a strong foothold in the AI domain. The companies had traditionally been competitors in digital payments business. The merger is likely to create synergistic benefits to help the new company better compete against rivals.   

Yahoo Japan had once been the leading search engine of the country with a dominant position in web portal and e-commerce business. However, it gradually lost its place as users migrated from PCs to smartphones and emergence of online shopping platform of Rakuten, Inc. RKUNY and, Inc. AMZN. Nevertheless, Yahoo Japan still boasts about 48 million daily active users across its portfolio of more than 100 mobile phone apps.

Line is a prime messenger service provider in Taiwan and Thailand with 21 million and 45 million customers, respectively. The company is focusing to develop a lineup of AI-powered hardware products, including speakers and earphones, to gain more access to the younger generation. The merger with Yahoo Japan is likely to provide a significant boost in this endeavor.

The transaction marks a major consolidation in the technology industry and comes at a time of heightened political tension between Japan and South Korea. Whether the deal will help to improve the strained relationship between the two countries remains to be seen.

SoftBank currently has a Zacks Rank #5 (Strong Sell).

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