The logos of the mobile messenger app Line and Yahoo! Japan are seen in this November 2019 file photo (Courtesy of AP, Yonhap)
Pressure from the Japanese government is building on Naver Corp. as LY Corp., the operator of the popular mobile messenger app Line in Japan, is publicly requesting the South Korean tech giant sever financial ties by selling down its control in LY.
Takeshi Idezawa, chief executive of LY, on Wednesday said during a conference call on its first-quarter earnings that LY is “strongly requesting its largest shareholder Naver to change its capital ties.”
“The government pointed out that if we could demand Naver strengthen its management of LY’s information technology infrastructure. In that regard, we’re strongly asking Naver to change its capital ties (with us). I understand Naver and SoftBank are in discussions over the matter.”
Analysts said the CEO’s remarks represent the Japanese government’s pressure on the South Korean company to shed its control over the popular mobile messenger app.
Mobile messenger app Line (right) is indirectly owned by Korea’s Naver and Japan’s SoftBank (Courtesy of Nikkei)
ONLY KOREAN BOARD MEMBER STEPS DOWN
On Wednesday, LY held a board meeting where it announced that Jungho Shin, LY’s chief product officer (CPO) and the sole Korean board member, would step down from the board, although he would continue to hold his CPO post.
His resignation will be official after approval at LY’s shareholders’ meeting in June.
Dubbed “the Father of Line,” Shin is said to have played a critical role in leading the messaging app’s successful launch in the late 2000s.
Idezawa said the board of directors has decided to cut two internal director seats while appointing one more outside director, aiming for a more independent management structure and strengthened security governance for LY.
The CEO said Shin’s resignation should not be seen as a dismissal. However, industry officials said it seemed he was held accountable for LY’s data leak last November, which triggered the Japanese government’s pressure on Naver.
LY Corp. CEO Takeshi Idezawa (Photo captured from LY Corp.’s website)
RARE GOVT INTERVENTION IN CORPORATE AFFAIRS
In March, Japan’s Ministry of Internal Affairs and Communications asked LY, the operator of Line app and internet portal Yahoo Japan, to reduce its reliance on Naver and review its relationship with Naver.
The comments were part of the ministry’s guidance against LY following a series of personal information leaks online, including an incident in November where LY’s servers were hacked and Line app user information was leaked.
According to several Japanese media reports, the ministry cited LY’s heavy dependence on Naver in terms of systems and network configurations among the causes of the incident.
While the data breach is cited as one of the key reasons behind the Japanese government’s rare intervention in the corporate issue, industry watchers say Japan may be attempting to seize the management rights of Line from the Korean firm.
LY is majority-owned by A Holdings, a 50-50 joint venture between Naver and Japan’s SoftBank Corp., a telecommunications company affiliated with the tech conglomerate SoftBank Group.
If SoftBank acquires just one more share in A Holdings, it would control LY.
Naver CEO Choi Soo-yeon (Courtesy of Yonhap)
LY TO CUT IT INFRASTRUCTURE WITH NAVER
LY said it will gradually separate its information technology infrastructure with Naver to strengthen its system security.
Last week, Naver Chief Executive Choi Soo-yeon said Naver is ready to accept Japan’s request to sever technology ties with LY, although it is undecided on its relationship with the Line operator.
“An administrative directive demanding a reduction in (capital) control over a company is highly unusual,” she said during a conference call with analysts after announcing Naver’s first-quarter earnings in Seoul. “That is a matter to be decided based on our mid- to long-term business strategy. We have yet to determine our stance on the matter.”
She said Naver is in “close communication” with the Korean government, including the Ministry of Science and ICT, over how to handle the issue.
Lee Hae-jin (left), founder and global investment officer of Naver and Masayoshi Son, founder and CEO of SoftBank
Korea’s Science and ICT Minister Lee Jong-ho said on Wednesday is closely watching the situation and is discussing countermeasures with Naver.
He said the ministry plans to address the matter with a priority on the fair treatment of Korean companies’ overseas operations and their investments.
“We are closely consulting with Naver to ensure its authority is protected to the fullest extent possible,” he said.
By Ji-Eun Jeong
jeong@hankyung.com
In-Soo Nam edited this article.
