Naver under growing pressure not to sell stake in Line to SoftBank

People walk past Naver’s headquarters in Seongnam, Gyeonggi Province, Monday. Yonhap

Naver, which operates the popular messenger app Line through LY Corp., is facing growing pressure to halt the divestment of its shares to SoftBank, despite mounting calls from the Japanese government and its local partners, according to industry and government officials, Monday.

LY Corp. has been under pressure from the Japanese government to reconsider its capital relationship with Naver following a data breach last November involving around 519,000 cases of personal data through Naver Cloud's server. Naver and SoftBank's 50-50 joint venture, A Holdings, owns 64.5 percent of LY Corp.

In response to this pressure, LY Corp. CEO Takeshi Idezawa said Wednesday that the company will gradually dissolve its consignment relationship with Naver and pursue technological independence.

Similarly, SoftBank announced Friday the initiation of a review of its capital relationship with Naver and said it will make a decision about its capital relationship with Naver by July.

Naver also revealed its stance Friday saying it has been in talks with SoftBank, keeping all options open, including the sale of its shares in LY Corp.

Following the announcement that Naver is considering giving up control of the messenger app that is popular in Japan, Taiwan and Southeast Asia, Naver's union insisted that its stake in LY Corp. should not be sold. "Protecting Line members and the technology and know-how they have accumulated is the top priority," the union said.

It continued, "The sale of (LY Corp.) shares would mean giving up not only the position of the major shareholder but also the possibility of the passion, effort, technology and experience of the members who have strived to gain global recognition for Line, which started as a Naver service, being transferred to the Japanese company SoftBank, and the possibility of employment instability for the members."

The union criticized the company's official stance as lacking consideration for the employees who would be most affected because Line is a service that was developed through Naver in 2011.

"If even a part of the 50 percent stake goes to SoftBank, then about 2,500 Korean workers, who are members of Line, may fear employment instability as they become part of a subsidiary of SoftBank," the union said.

Furthermore, politicians have urged the government to take a more active stance, arguing that the technology and shares of a Korean company should not be allowed to be taken away by a Japanese company.

"The Japanese government's behavior is a clear violation of our national interests and an anti-market outrage," Rep. Cho Seung-rae of the main opposition Democratic Party of Korea said Sunday during a press conference at the National Assembly in Seoul. "It's time for the National Assembly to do its job, so we demand an immediate standing committee meeting and a parliamentary response."

He added, "At a time like this, our government should take a firm stance, but the Yoon Suk Yeol government continues to repeat its incompetence, lack of planning and irresponsibility and shifts all responsibility to Naver. The Japanese government must immediately stop its anti-market outrage."

Sung Tae-yoon, director of national policy at the presidential office, speaks during a press briefing at the presidential office in Yongsan District, Seoul, Monday. Yonhap

Rep. Yoon Sang-hyun of the ruling People Power Party stressed the need for bipartisan cooperation in response to this situation, emphasizing the need to join forces to protect Korea's national interests.

"We urge restraint so that this issue does not escalate into an anti-Japan issue, and as soon as possible, a task force involving the private sector, both ruling and opposition parties and the government should be formed, and efforts should be made to allow both Korea and Japan to conduct a joint investigation," the lawmaker said during a press conference at the National Assembly in Seoul, Monday.

A preparatory committee of IT civil solidarity for fairness and justice also called for the formation of a fact-finding committee in the National Assembly, claiming that the Japanese government deceived the Korean government and pressured Naver to sell its shares in LY Corp.

"The Japanese government is deceiving us by saying there was no mention of 'share sale' in its administrative guidance," the organization said on Monday. "We are outraged by Japan's duplicity and wordplay, and we can't help but doubt the diplomatic credibility and national dignity of the Japanese government, which claims to be a global leader."

In response to these demands from politicians and the public, the government stated that it has been closely communicating with Naver regarding response measures and will continue to provide all necessary support.

"The government's consistent stance is to prioritize the interests of our citizens and companies above all else. Under this principle, the government has so far respected Naver's position to the fullest and reflected it in its own response. If Naver has any additional positions, the government will also provide all necessary support at the government level," Sung Tae-yoon, director of national policy at the presidential office, said during a press briefing, Monday.

"If Naver decides to maintain its shares in and operation of LY Corp., we will support the implementation of appropriate information security measures. We hope this issue, which has attracted high public interest, will serve as an opportunity for Naver to strengthen its information security."

Experts have expressed concerns that if Naver sells its shares in LY Corp. to SoftBank, it could lead to a decline in the competitiveness of the company. Naver was planning to expand into Japan and Southeast Asia through the expansion of services linked to Line, but this development could negatively affect such plans.

"If the sale of shares becomes a reality, a short-term stock price adjustment seems inevitable, and the expansion story into Japan and Southeast Asia based on Line would inevitably lose its momentum," said Lim Hee-seok, a researcher at Mirae Asset Securities.