SoftBank-backed Z Holdings seeks mega-deal to shake up online world

Japan’s Z Holdings, the newly formed SoftBank-backed internet group, is seeking a transformative deal to reshape the social media landscape the way Google and Facebook did in buying YouTube and Instagram.

In an interview with the Financial Times, the joint chief executives of Z Holdings said the group would pursue acquisitions as well as tie-ups with start-ups backed by SoftBank’s $100bn Vision Fund to create a south-east Asian rival to tech giants in the US and China. 

“We will be looking for opportunities to acquire an epoch-making global service,” said Kentaro Kawabe, co-chief executive of Z Holdings.

Earlier this week, Z Holdings, a subsidiary of SoftBank’s telecoms arm that operates Yahoo Japan, completed its merger with messaging app Line, which was majority owned by South Korean internet search group Naver. The combined entity has a market capitalisation of $43bn.

Backed by SoftBank founder Masayoshi Son, the merger is the most serious attempt by Japanese and South Korean internet companies to create a powerhouse in data and artificial intelligence serving Asian markets outside of China.

“Our ambition is to become the third [technology] option for the world,” Kawabe said. 

The deal also came as regulators worldwide seek to rein in the growing powers of Big Tech, while businesses find themselves caught in the technology war between the US and China.

As part of the integration, the two groups plan to invest ¥500bn ($4.7bn) to expand Z Holdings’ AI capabilities and hire 5,000 engineers globally. Kawabe said acquisitions of start-ups would be done using a separate, unspecified budget.

Z Holdings aims to generate ¥2tn in revenue by the fiscal year ending in March 2024 by expanding advertising sales as well as its ecommerce and payment businesses. 

The group plans to capitalise on Line’s existing success in south-east Asian markets such as Taiwan, Thailand and Indonesia to expand its global footprint especially since Yahoo Japan has no presence outside of Japan. 

While Line has built a strong user base for its messaging service, its efforts in payments and ecommerce have just started in countries such as Thailand and Indonesia. 

Takeshi Idezawa, the group’s other co-CEO who used to head Line, said it would look to expand its south-east Asian food delivery, ride-sharing, ecommerce and fintech businesses through potential tie-ups with Vision Fund-backed companies.

The fund’s investment portfolio includes Indonesian ecommerce group Tokopedia, Grab, the south-east Asian ride-hailing and food delivery app and South Korean ecommerce group Coupang.

In its home market, the group — which will have 300m domestic users — also aims to help accelerate Japan’s efforts to digitalise government and healthcare services after the Covid-19 pandemic exposed their heavy reliance on paper processes.

“We feel ashamed. We had previously given up on government agencies since they still use fax machines,” Kawabe said. “But from now on, we’re going to be actively making proposals for digitalisation.”

The co-chief executives of Z Holdings said they were prepared for increased regulatory scrutiny as Japan joined other governments in tightening supervision of digital platforms with the passage of a law this year aimed at protecting smaller retailers.

“We want to take steps before tensions emerge,” Idezawa said. “With two companies becoming one, we will become a significant force and there will be responsibility that comes with that.”