Yahoo Japan Drops on $3.2 Billion Deal for SoftBank Assets

Mar 28, 2014 3:11 am ET

(Updates with closing share price in fifth paragraph.)

March 28 (Bloomberg) -- Yahoo Japan Corp. slumped after agreeing to buy eAccess Ltd. for 324 billion yen ($3.2 billion) from parent SoftBank Corp. as the nation’s most-visited Web portal expands in wireless data and voice businesses.

The stock fell to the lowest since Dec. 6. Yahoo Japan will start a new service to be called “Y!mobile” that shares phone networks with SoftBank, and the transaction will go ahead once eAccess completes a merger with Willcom Inc., Yahoo Japan said yesterday. All three companies and SoftBank are controlled by billionaire Masayoshi Son.

Yahoo Japan is paying 80 percent more in cash for eAccess than the 180 billion yen SoftBank paid for the assets at the end of 2012 as it seeks to add bandwidth for users surfing the Web, watching videos and playing games. Son, who led last year’s $22 billion acquisition of Sprint Corp., is seeking to diversify as Japan’s population ages and his home market shrinks.

“It is questionable whether Yahoo Japan can generate large profit in the mobile phone business,” said Eiji Maeda, an analyst at SMBC Nikko Securities Inc. in Tokyo. “Yahoo Japan would have achieved desirable growth by its existing business without buying new.”

Shares of Yahoo Japan fell 6.4 percent to close at 514 yen in Tokyo trading, extending a 12 percent drop this year. SoftBank fell 1.5 percent to 7,694 yen.

Regulatory Concerns

SoftBank’s acquisition of eAccess in 2012 faced concern from regulators. In January, the Tokyo-based company agreed to sell 66.7 percent of voting rights in eAccess to 11 companies, including a Samsung Electronics Co. subsidiary, while retaining almost all the shares economic interest in the business.

Under the terms of the deal announced yesterday, Yahoo Japan will pay cash for about 99.7 percent of eAccess stock while gaining 33.3 percent of the voting shares.

“It’s mainly window dressing,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. “They’ve kept it under the SoftBank umbrella.”

SoftBank, Japan’s third-largest carrier, will book a 55.7 billion yen gain on the sale of eAccess in the 2014 fiscal year, according to a statement.

The deal is likely to shrink Yahoo Japan’s operating profit margins and add about 100 billion yen of debt to its balance sheet, according to Tetsuro Tsusaka, an analyst at Morgan Stanley MUFG Securities Co.

Margin Impact

“It seems inevitable that the acquisition will make virtually no OP contribution while further eroding the OP margin,” Tsusaka said in a report to clients yesterday.

SoftBank, founded by Son in Tokyo in 1981 as a wholesaler of packaged computer software, has been transformed into a full- fledged telecommunication operator via acquisitions, including that of the Japanese unit of Vodafone Group Plc.

Son has explored acquiring T-Mobile US Inc., the fourth- largest American wireless operator, to combine with third-ranked Sprint.

SoftBank has invested in more than 1,000 companies and holds about a 37 percent stake in Alibaba Group Holding Ltd., the Chinese e-commerce operator that has been valued at as much as $200 billion and has started the process for a U.S. initial public offering.

Yahoo Japan got more than half of last fiscal year’s sales from advertising. SoftBank owns 43 percent and Yahoo! Inc. 35 percent, according to data compiled by Bloomberg.

In June, Yahoo Japan said it’s targeting a 77 percent increase in earnings during the next six years by expanding its e-commerce business, where it competes with Rakuten Inc., and offering more services for smartphones and tablet computers.

SoftBank, Japan’s third-largest carrier, will book a 55.7 billion yen gain on the sale of eAccess in the 2014 fiscal year, according to a statement.

The merger of SoftBank and eAccess shortly after each company received new bandwidth was problematic, a member of a Ministry of Internal Affairs and Communications panel said in October 2012, according to ministry’s website.

--With assistance from Gearoid Reidy and Jason Clenfield in Tokyo.