Uncertainty over ability of SoftBank to buy company
Vodafone is poised to pull out of Japan after admitting that it was in talks with the Japanese internet investment group SoftBank to sell its ailing mobile phone company there in a deal worth about £6bn.
Sources close to the matter said the deal would be valued significantly higher than the 1 trillion yen ($8.6 billion) figure which other sources said the two companies had discussed over a year ago. The unit’s book value is about 2 trillion yen.
The third-ranked Vodafone KK business has been the symbol of much of the British-based group’s woes and analysts said any decision to sell the operation would ease some of the pressure on Vodafone to exit the United States.
The news was met with delight in the City, which has become increasingly frustrated with Vodafone Japan’s slow recovery in the face of fierce competition. Vodafone shares ended 8.5% higher after 1.6bn changed hands in frenzied trading. Two in every five shares traded on the London Stock Exchange was a Vodafone share.
Tangled Web:
Vodafone KK has been struggling to recover from a tumultuous few years in which sales of its third-generation phones fell flat, its leadership changed twice within a year, and it suffered an industry-record monthly loss of customers.
Vodafone entered the Japanese market in 1999 when it inherited stakes in nine regional mobile phone companies through its merger with US rival AirTouch. That deal also brought current chief executive Arun Sarin into Vodafone. But delays in rolling out new technology have seen the business lose customers to its rivals NTT DoCoMo and KDDI and Sarin, has come under pressure to improve the situation.
At the time he was president and chief operating officer of AirTouch and went on to head up the merged company’s operations in the US and Asia Pacific region until he became a non-executive director in mid-2000. Meanwhile the nine Japanese subsidiaries were reorganized into three companies – J-Phone East, J-Phone West and J-Phone Central – which became known as J-Phone Group. Vodafone’s fellow shareholders were Japan Telecom and BT, whose interests were bought out by Vodafone for £3.7bn in 2001.
But Sarin had repeatedly resisted pressure from investors to exit Japan, calling it a strategic asset and stressed the need to be present in the world’s most advanced wireless market.
Vodafone, the world’s largest mobile operator by sales, said the talks with the Internet communications conglomerate may or may not lead to a deal and a further announcement would be made in due course.
Vodafone admitted this week that it might have to cut about £5bn from the value of its Japanese unit due to its poor performance. The competitive landscape in the country is also expected to worsen over the coming year following the Japanese government’s recent award of three new licences to operate mobile phone services to eAccess, IPMobile and SoftBank.
SoftBank, run by the entrepreneur Masayoshi Son, had been in talks with Vodafone to lease capacity on its network to run its mobile phone service. Those talks, however, quickly mutated into negotiations about the sale of the entire business.
The sources said the two firms were in the final stages of talks and a deal could be reached this month. Softbank declined to comment.
Future Turnaround:
Some investors have called upon the group to sell its 45 percent stake in Verizon Wireless, its joint venture in the United States with Verizon Communications, and return the cash to shareholders.
Vodafone Japan is valued on Vodafone’s books at about £10bn but analysts reckon it is likely to fetch only about £6bn in a trade sale. While Vodafone’s statement refers to selling a "controlling interest", the company is understood to be looking to offload the entire business rather than maintain a minority stake. The issue is whether SoftBank has pockets deep enough to be able to afford the entire business as Vodafone is believed to want cash rather than SoftBank stock.
Preeminent in Japan:
SoftBank, which owns Yahoo! Japan, is only now climbing out of the red after four years of losses following a number of acquisitions and an expensive move into the Japanese broadband market.
Softbank, Japan’s largest broadband Internet provider, has been setting its sights on Japan’s $78 billion mobile market for years as it aims to become a preeminent communications company, providing everything from broadband, mobile and Internet services and content.
Last year it made a loss of about £300m, although that was just half the loss of the previous year. In the three months to December – the third quarter of SoftBank’s financial year – the company made a small profit as its investment in broadband finally started to pay off. Mr Son told analysts then that he hoped the business would post a profit for the year as a whole.
The company has been on a slow recovery since then, but industry sources said the company was still having problems meeting the needs of a demanding market while staying within the boundaries of its global strategy.
It was also awarded a mobile license in the autumn to start a new service but the acquisition of Vodafone KK would accelerate its efforts to become a major player in Japan’s mobile market.
Mr. Son, who has criticized the high prices that incumbent mobile operators charge; has pledged to offer a cheap mobile service affordable to everyone.
In the meantime, Vodafone sent former UK chief Bill Morrow back to Japan to turn the unit around.