LY Corp., a Japanese affiliate of the prominent Korean internet company Naver, stirred the tech world by announcing its demand for the sale of its stake in Naver on May 8. This demand, revealed during a conference call to discuss LY Corp.’s first-quarter earnings, is a response to administrative guidance from the Japanese government. CEO Takeshi Idezawa explained that Japan’s Ministry of Internal Affairs and Communications asked the company to reassess their capital ties with Naver, citing concerns about data and security governance.
It was reported that the Japanese government pressured Naver to sell its stake in LY Corp. after a data breach incident last November. However, Japan’s Ministry of Internal Affairs and Communications has claimed to Korean media that “administrative guidance regarding LY Corp. is not a demand for Naver to sell its stake.”
The demand puts pressure on Naver, which holds a majority stake in LY Corp., to reconsider its capital relationship. LY Corp. is largely owned by A Holdings, a joint venture between Naver and SoftBank. While Idezawa refrained from divulging specifics, he mentioned ongoing discussions between Naver and SoftBank regarding the matter.
Simultaneously, LY Corp. announced the resignation of Shin Jung-ho, its Chief Product Officer (CPO) and a key figure in developing the LINE messaging app, from its board. This move signals a potential shift in the composition of LY Corp.’s leadership, with speculation arising about a decline in Korean influence within the company.
Despite Shin’s departure from the board, he will continue to serve as LY Corp.’s CPO. Idezawa clarified that the decision to reduce internal directors aims at enhancing security and bringing in more external perspectives.
Idezawa’s assertion that SoftBank should hold the majority stake in A Holdings aligns with LY Corp.’s strategy to reduce its reliance on Naver’s technological collaboration. They plan to gradually terminate their partnership with Naver and invest approximately 15 billion yen to establish an independent network and infrastructure.
The sudden announcement caught Naver off guard, prompting an emergency board meeting. While Naver’s technological capabilities are crucial for LY Corp., it may find itself with limited options regarding the stake sale. An industry insider commented that “Given that Naver’s technological capabilities are absolutely critical in operating LY Corp., Naver will likely seek to ensure sufficient value even if it sells its stake.”
Meanwhile, the Korean government is closely monitoring the situation to ensure fair treatment of Korean companies in overseas business dealings. Minister of Science and ICT Lee Jong-ho earlier in the day emphasized the importance of safeguarding Naver’s decision-making rights amid the unfolding developments.
