TOKYO -- Shares in Softbank's Yahoo Japan surged as investors cheered the prospect of its merger with messaging app Line, a $27 billion union that would create a giant payments, news portal and e-commerce platform with over 100 million users.
The deal, if it concludes, would reshape Japan's digital landscape and form a bigger competitor to U.S. and Chinese internet groups by creating a one-stop platform, or "super app," for a range of services entwined into every aspect of users' lives.
Unlike in the U.S. or Europe, Yahoo Japan remains a leading search engine and news portal in its home market, with an e-commerce business that has around 29 million users. Meanwhile, Line is Japan's most popular chat app with 82 million users, putting it far ahead of Instagram and Facebook in the country.
Shares in Yahoo Japan, which last month changed its name to Z Holdings, rose 16% by midday in Tokyo trading. SoftBank Corp., which has a 44% stake in Z Holdings, rose as much as 2.6%. Z Holdings has a market capitalization of around $17 billion.
Naver, the South Korean parent of Line, meanwhile jumped 9% in Seoul. Tightly-held Line, which has a market capitalization of around $10 billion, rose by 3%.
The combination, which comes just two months after Yahoo Japan splashed out $3.6 billion for maverick Japanese fashion retailer Zozo in a bid to crack Japan's $110 billion e-commerce market, would overtake Rakuten, Japan's leading internet company by revenue. Shares in Rakuten fell by 5% in Tokyo.
It would also be a rare example of a Japan-South Korea business tie-up, especially as the two countries have frayed ties due to a yearlong dispute over wartime history which has led to a major trade spat.
News of the deal, which may or may not finally happen, broke late on Wednesday. SoftBank Corp., the mobile arm of SoftBank, said in a statement on Thursday morning that it is "discussing various possibilities including [the merger]".
The positive investor reaction to the deal will come as a welcome reprieve for SoftBank, headed by chairman and CEO Masayoshi Son, which last week recognized $9 billion of losses on its Vision Fund investments, such as WeWork.
"Both companies will benefit," Yasuo Sakuma, chief investment officer at Libra Investments, said. "By merging with Yahoo, competition will ease [between the two companies]...Combining their strong and massive user bases will also help the companies to come up with possibly new services."
The mooted merger's quest for scale and super app capability draws a leaf from Son's most successful investment, a 26% stake in Alibaba, the Chinese e-commerce giant, which is worth over $110 billion.
It also takes as its example Chinese super app Tencent Holdings, which has over 1 billion users across its WeChat app, e-commerce and e-payment platforms, and games and streaming services.
The most obvious area for synergies would come from combining the two companies digital payments operations, a sector that has seen a wave of new entrants in Japan and fierce competition. Line Pay has 37 million users and PayPay, operated jointly by SoftBank and Yahoo Japan, has 19 million.
However, it will not all be plain-sailing. Line counts 82 million monthly active users in Japan, and is also the leading messenger app in Taiwan and Thailand, where it has 21 million and 45 million customers respectively.
However, it is struggling to gain new users. With revenue of just over 200 billion yen, it lacks the cash to become a super app on its own, and logged a 33.9 billion yen net loss for the January-September period.
Z Holdings meanwhile hopes to bolster services like mobile payments, e-commerce and a news-search engine through a merger with Line. Line has similar services and could provide access to the app's users.
One proposal for the deal would see SoftBank and Naver set up a new 50-50 venture, which would become the top shareholder in Z Holdings. Yahoo and Line would then become separate wholly owned subsidiaries of Z Holdings, sources told Nikkei.
The two sides are in negotiations to make the new venture into a consolidated subsidiary of SoftBank. Z Holdings would remain listed on the Tokyo Stock Exchange.
-- additional reporting by Jada Nagumo in Tokyo