Japan’s NTT launches $40 billion buyout of wireless unit Docomo

NTT Docomo

Japan’s state-backed Nippon Telegraph and Telephone Corp (NTT) stated it’ll take its wireless carrier business private in a deal worth 4.25 trillion yen (approximately $40 billion) and that may spark a span of mobile price reductions.

NTT will establish a tender offer for the 34 percent of NTT Docomo stock that it does not own, the business said in a statement. The telecoms company provides 3,900 yen per share – a premium of 40.5% of Monday’s closing price.

The buyout comes as new prime minister Yoshihide Suga calls on wireless carriers to reduce costs, with the government expecting resulting savings will stimulate consumer spending elsewhere in the economy. On Tuesday, Chief Cabinet Secretary Katsunobu Kato revealed that call, saying there has to be “visible progress on lowering mobile phone charges”.

The former state monopoly still counts the government as its largest shareholder with a 34% stake.

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NTT’s share price fell as much as 5.8% on Tuesday before shutting down 3 percent, while NTT Docomo ended up 16% at its daily trading limit.

Mobile peers KDDI Corp and SoftBank Corp fell 4%, with SoftBank touching record lows, as the telco’s continue a slide which began when Suga’s predecessor Shinzo Abe announced his resignation on August the 28th.

OBLIGING

NTT spun off NTT Docomo in 1992 before record in 1998, as the government sought to stimulate competition in the telecoms sector. Buying back it would indicate the end of a notable “parent-child” list that are frowned on in different markets but remain prevalent in Japan.

At $40 billion, NTT’s tender offer would be Japan’s largest-ever, Refinitiv data revealed.

“Post acquisition, Docomo will no longer be answerable to shareholders.

Government efforts to enhance competition have included financing Rakuten Inc’s entrance to the industry this year. The e-commerce company’s low-cost plan version could endure, however, should prices fall more broadly.

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Meanwhile, the government pricing pressure comes as carriers spend large to construct fifth-generation services widely regarded as crucial to ensuring Japan’s competitiveness.

The buyout “is driven more by the potential to develop 5G and IoT services than regulatory pressure,” said analyst Kirk Boodry in Redex Research, referring to the Internet of Things. The industry is seeking “new, less regulated revenue streams,” he explained.

NTT will finance the acquisition through loans from Japan’s three largest banks, two individuals familiar with the matter told Reuters, declining to be identified because the thing was personal. Mitsubishi UFJ Financial Group will be the largest lender, the people said.

The banks declined to comment.

The total loan package including financing from others will total 4 trillion yen, Nikkei reported. NTT will turn to longer-term loans and debt issuance, Nikkei said.

The telecoms firm had more than 1 billion yen in cash and cash equivalents on its balance sheet at June-end.

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The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Sam Nussey, Makiko Yamazaki and Takashi Umekawa. Additional reporting by Hiroko Hamada, Tetsushi Kajimoto and Junko Fujita. Editing by Richard Pullin and Christopher Cushing.

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