Stalled talks for Line stake sale: Boon or bane for Naver?

Negotiations over Naver’s sale of a stake in its joint venture with Japan’s SoftBank are expected to be prolonged, with no immediate breakthrough in sight.

Naver CEO Choi Soo-yeon on Tuesday said the Korean portal giant had no immediate intention to sell its stake in LY Corp., the operator of Japan’s popular messenger Line. Naver and SoftBank each own 50 percent of A Holdings, which controls almost 65 percent of shares in LY Corp.

Asked about the possible change in its ownership of LY Corp. during a parliamentary hearing, Choi said, “There will be no change in the short term. In the longer term, we cannot confirm our strategic decision.”

Her comments come as Naver is being pressured by the Japanese government to reduce its control over Line, sales of which mostly come from Japan, after a massive data leak in November last year.

It remains to be seen whether the stalled talks are a boon or bane for Naver. Securing abundant cash from the stake sale is crucial for its push for artificial intelligence, but it could lose its global footing, especially in Southeast Asia where it has been expanding its presence by leveraging the popular Line app. Its Line stake is valued at about $8 billion, almost half of its market cap.

“The Japanese government and SoftBank appear to be trying to conclude the deal promptly,” said Wi Jong-hyun, a professor at Chung-Ang University Business School. “If the negotiations are extended into a long-term battle, the Japanese government will end up weakening its negotiating power.”

But he also noted that Naver should have worked more closely with the Korean government from the earlier days of the dispute.

According to industry sources, Naver had sought to handle the Line issue independently, concerned that political or diplomatic intervention could dampen its strategic decision.

“Now Naver is in an isolated position,” Wi said, citing the Korean government’s lukewarm response to the issue, unlike the close collaboration between the Japanese government and SoftBank.

“We can bring the issue to this year’s parliamentary audit (later this year), during which we can claim our technological sovereignty,” he added.

Regardless of the political brouhaha in and out of the country, a falling stock price is also putting greater pressure on Naver more recently, sources said.

"Naver’s stock price hit its 52-week low several times recently. Its price-to-earnings ratio is 16.2 times, the same level as back in 2013, affecting its market cap negatively," an analyst at a local securities firm said on condition of anonymity.

"Uncertainties surrounding the Line stake and Naver's mid- to long-term business strategy are a major reason behind the falling price. No immediate breakthrough is seen for now."

Naver’s stock was once trading at 159,600 won ($115.50) on Wednesday, falling below the 160,000 won level for the first time in 20 months. On Thursday, its stock closed flat at 159,800 won, while the benchmark Kospi inched up 1.11 percent.

In March 2022, when Choi took office, Naver’s stock price was 329,000 won with a market cap of 53.97 trillion won. The market cap has since plunged to 25.95 trillion won.