Mr. LEE Hae-Jin
Chairman of the Board
JR Shinjuku Miraina Tower 23F
Dear Mr. Lee,
Metrica Partners Pte. Ltd. (“Metrica”) is the manager of, and adviser to multiple funds that own shares in LINE Corp. (“LINE”).
We refer to yesterday’s announcement by LINE, showing that a majority of independent shareholders joined Metrica in refusing to tender their shares into the Joint Tender Offer by SoftBank and NAVER.
Metrica stands by its previously expressed (note 1) opinion that the tender offer price was inadequate:
- It represented only a 17% premium to the undisturbed price, compared with a historical average premium of 38% for similar takeovers in Japan (source: Mergermarket Limited, 6 December 2019).
- It was lower than the mid-point of the financial advisor’s DCF valuation, which explicitly did not include the effect of synergies, despite the recommendation in the METI Fair M&A Guidelines (“the Guidelines”) that minority shareholders facing a squeeze-out should receive a portion of the expected synergy benefits.
- It was not revised at the launch of the Joint Tender Offer in August to reflect the meaningful improvement in LINE’s business as evidenced in 2Q results as well as the significant increase in comparable company valuations.
- It was set with reference to a market price which did not incorporate LINE’s previously undisclosed management forecasts, which revealed that LINE is on the point of turning profitable on an operating basis.
- It represents a substantial discount to JPY 8,288, the value per LINE share obtained by NAVER through the Business Integration (note 2), based on 15 September 2020 closing prices.
Furthermore, Metrica believes that LINE’s other independent shareholders may share Metrica’s concerns that the procedures leading up to the Special Committee’s decision to express, and subsequently reaffirm, its support for the Joint Tender Offer did not meet the required standard of fairness envisioned in the Guidelines:
- The Joint Tender Offer did not include any minimum shareholder acceptance condition, and there is no mention of any corresponding enhancement of other Fairness Ensuring Measures recommended by the Guidelines.
- Two of the Special Committee members joined the board of the ultimate acquiring party Z Holdings, contradicting guidance that the Special Committee should have no significant interest in the success or failure of the M&A transaction different from that of general shareholders.
- One of the Joint Tender Offer parties is a major client of the financial advisor to the Special Committee, paying them US$250 million in the two years leading up to the transaction. This potentially creates a perception that the advisor has a serious interest in the success or failure of the transaction, contrary to the Guidelines.
- NAVER is deriving substantially more value from the Business Integration (JPY 8,288, as noted above) than is being offered to minority shareholders (JPY 5,380), and this is far in excess of anything that can be explained as an appropriate division of expected synergy benefits, in Metrica’s view.
Over the last two weeks, Metrica has been approached by many other LINE shareholders that have expressed similar sentiments regarding the Joint Tender Offer price and the perceived fairness of the transaction.
While many of these shareholders are major institutional investors that, similar to Metrica, have the time and financial resources to fund an appraisal rights action through the Japanese court system, Metrica has also been contacted by retail investors for whom such an action would be well beyond their means. Metrica is disappointed that the Joint Tender Offer parties plan to forcibly acquire the shares of retail investors at a disadvantageous price and in a manner that effectively leaves them with no recourse.
In the interests of fairness, LINE must therefore immediately take action to protect the interests of all minority shareholders, large and small, by postponing the Share Consolidation EGM and asking SoftBank and NAVER to resubmit the Joint Tender Offer with both a fair price and a minimum shareholder acceptance condition.
Damian L. Edwards
Chief Investment Officer
Metrica Partners Pte. Ltd.
Note 2: According to Metrica’s analysis, NAVER stake in LINE was worth JPY 802 billion at LINE’s closing price of JPY 4,585 on 13 November 2019 (the undisturbed price date). NAVER is also expected to contribute about JPY 196 billion of cash to the Business Integration, consisting of about JPY 186 billion as part of the Joint Tender Offer, and a further JPY 10 billion as part of the JV Conversion Transaction. Upon the conclusion of the Business Integration, NAVER will own over 2.4 billion shares in Z Holdings, which are currently worth JPY 1,636 billion. This equates to a profit for NAVER of more than JPY 638 billion, which is equivalent to JPY 3,643 for each share that NAVER currently owns in LINE. It means that NAVER ultimately ends up with value equivalent to at least JPY 8,228 (= JPY 4,585 + JPY 3,643) per share.