October 3, 2022
NTT launches  billion buyout of wireless unit DoCoMo

Japan’s Nippon Telegraph & Telephone said it will spend JPY 4.25 trillion (about Rs 2,96,637 crore) to keep its wireless carrier business private, in a deal that opens the way for lower prices as the government seeks cuts .

NTT will launch Japan’s largest ever tender offer for 34 percent of NTT DoCoMo stock that it does not hold, the firm said in a statement. The telecom firm will offer JPY 3,900 (approximately Rs 2,700) per share, which is a premium of 40.5 per cent over Monday’s closing price.

The buyout comes as new Prime Minister Yoshihide Suga calls on wireless carriers to reduce prices, with the government hoping the resulting savings will stimulate consumer spending elsewhere in the economy.

On Tuesday, Chief Cabinet Secretary Katsunobu Kato reiterated that call, saying “clear progress on reducing mobile phone charges” is needed.

“NTT DoCoMo’s financial base will be strengthened by giving us the ability to cut prices,” NTT Chief Executive Jun Sawada said at a news conference.

NTT’s share price fell as much as 5.8 percent after the company considered a buyout. The stock closed down 3 percent while NTT DoCoMo closed up 16 percent on its daily trading range.

Mobile peers KDDI and SoftBank fell 4 percent, with SoftBank hitting record highs.

It continued a slide among telcos that began when Shinzo Abe announced plans to step down as prime minister on August 28, as investors digested the prospect of Suga, who had earlier called for price cuts. did, became the chief.

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NTT demerged NTT DoCoMo in 1992 before listing in 1998, as the government sought to encourage competition in the telecom sector. Buying it back would mark the end of a major parent-child inventory that is common in Japan yet overseas.

Data from Refinitiv shows that at $40 billion (about Rs 2,94,954 crore), NTT’s tender offer is one of the largest deals globally this year.

“After the acquisition, DoCoMo will no longer be accountable to shareholders. If the government instructs it to cut prices, it will oblige,” Jefferies analyst Atul Goyal wrote in a client note.

NTT, a former state monopoly, still counts the government as its largest shareholder with a 34 percent stake.

Government efforts to increase competition include supporting Rakuten’s entry into the sector this year. The e-commerce firm’s low-cost planning model may suffer, however, should prices fall more widely.

Meanwhile, government pricing pressure comes as carriers spend big to build fifth-generation services that are widely seen as key to ensuring Japan’s competitiveness.

Kirk Boodry, analyst at Redex Research, cited the Internet of Things as being “driven more by the ability to develop 5G and IoT services than by regulatory pressure.” The industry is looking for “new, less regulated revenue streams,” he said.

The telecom firm said it will finance the acquisition through loans totaling JPY 4.3 trillion (about Rs 3,00,127 crore) from Japan’s three largest banks and others, with Mitsubishi UFJ Financial Group being the largest lender.

NTT’s approach contrasts with that of SoftBank, which is selling its stake in its wireless unit, eschewing stagnant dividend income in favor of cash injections as it focuses on investments.

© Thomson Reuters 2020

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