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Business deals

As Line hits growth wall it seeks SoftBank integration

A merger threatens to shake up Asia's digital services playing field

SoftBank is expected to become the parent company of a new joint venture to be set up by SoftBank and Naver. (Photos by Ken Kobayashi)

TOKYO -- The company that runs the popular-in-three-markets Line chat app is in the final stages of integration talks with the operator of the Yahoo Japan stable of internet services, a merger that could rearrange Asia's smartphone app battlefield.

It was in January when Line President Takeshi Idezawa declared that Line would go on a strategic investment offensive focusing on fintech and artificial intelligence. "We will double strategic investment," he said of the year ahead.

Idezawa envisioned bringing together must-have tools that users would rely on from the time they wake up to the time they go to bed, with the eponymous messaging app at the core.

But for the first nine months of 2019, Line posted a net loss of 33.9 billion yen ($311.8 million) on a consolidated basis, using international accounting standards. The number compares with a net loss of 6 billion yen for the year-earlier period.

Line is Japan's dominant messaging app. It is impossible to step onto a Tokyo commuter train and not see it in use. But it has yet to recoup its upfront investment.

The chat app is used by 82 million people in Japan, 45 million in Thailand and 21 million in Taiwan. These numbers, however, are losing their growth momentum.

The total number of monthly users in Japan from July through September increased 5% from the same four months one year earlier. This compares to double-digit year-on-year growth from January through March 2018.

Line is part of South Korea's Naver. Yahoo Japan is run by Z Holdings, which is part of the SoftBank Group.

The deal is expected to entail SoftBank becoming the parent company of a SoftBank-Naver joint venture that would have all of Z Holdings' and Line's operations under its umbrella.

If the deal goes through, it could affect digital alliance strategies throughout Asia.

The SoftBank Group has invested in Paytm, India's biggest smartphone payment company; Grab, the Singaporean "super app" that began as a ride hailing service; and other digital concerns through a 10-trillion-yen fund.

All of these services under one umbrella would likely pressure other digital players to keep up by forming their own alliances.

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