Japan’s NTT to buy out mobile unit DoCoMo in $40bn deal - Financial Times

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Japan’s former state telecoms monopoly is taking private the NTT DoCoMo mobile unit it listed 28 years ago in a $40bn deal, launching the country’s biggest ever tender offer in a bid to survive a price war and the 5G race.

Nippon Telegraph & Telephone’s move to buy the 34 per cent stake it does not own in its mobile telecoms unit will make the group more likely to yield to government pressure for more aggressive price cuts on mobile fees, according to analysts.

It also will allow the group to use its resources more efficiently as costs of technology development rise, to build out its next-generation 5G network and as the coronavirus crisis forces a shift towards digital among Japanese businesses.

In a statement on Tuesday, NTT, which is 34 per cent owned by the Japanese government, said it would offer ¥3,900 ($37) per NTT DoCoMo share. That represents a 40 per cent premium to the stock’s closing price on Monday.

The group plans to finance the deal using bank loans and proceeds from the sale of assets. At ¥4.3tn, it is the largest domestic offer for a Japanese company outside the banking sector since KDDI was formed through a three-way ¥1.9tn merger in 1999, according to research group Recof.

Ahead of the announcement, shares in NTT DoCoMo, Japan’s largest mobile company, jumped 16 per cent and NTT fell 2.8 per cent in response to a Nikkei newspaper report about the buyout early on Monday.

While there was a round of price cuts last year, Japan’s new Prime Minister Yoshihide Suga has pledged to lower mobile phone fees further. That has already driven a sell-off in shares of NTT DoCoMo and its peers since he took the post in mid-September.

Jun Sawada, NTT’s chief executive, stressed during a news conference that the buyout was not directly linked to government pressure on pricing, saying discussions within the group began in April.

However, Mr Sawada added: “As a result of this move, DoCoMo will become stronger with a more solid financial position so it will have capacity to carry out further price cuts.”

Expectations of a deepening price war, which the government calculates would be welcomed by a Japanese public who pay some of the highest mobile phone fees in the world, hit shares in NTT DoCoMo’s two main domestic rivals on Tuesday. SoftBank’s mobile unit and KDDI each fell 4.1 per cent.

“Post-acquisition, DoCoMo will no longer be answerable to shareholders. If the government instructs it to cut prices, it will oblige. And then it will be just a matter of time that KDDI, SoftBank will follow,” Jefferies analyst Atul Goyal wrote in a report.

Ahead of the announcement by NTT, Katsunobu Kato, Japan’s chief cabinet secretary, called for a “visible drop” in mobile fees. “We hope each company will actively consider lowering fees with reference to fee levels internationally,” he said.

Analysts said that NTT’s move could be interpreted as a response to rising pressure on Japanese companies to improve corporate governance and in particular to eliminate so-called parent-child pairs of listed companies seen as potentially abusive to minority shareholders.

However, Mr Sawada made no specific reference to corporate governance or to the removal of child listings in explaining the takeover bid for NTT DoCoMo, which accounts for 55 per cent of the group’s annual operating profits.

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