By Sam Nussey and Makiko Yamazaki
TOKYO (Reuters) – Japan’s state-backed Nippon Telegraph and Telephone Corp (NTT) said it will take its wireless carrier business private in a deal worth 4.25 trillion yen ($40 billion) and which could spark a period of mobile price cuts.
NTT will launch a tender offer for the 34% of NTT Docomo Inc stock that it does not own, the firm said in a statement. The telecoms firm will offer 3,900 yen per share – a premium of 40.5% to Monday’s closing price.
The buyout comes as new prime minister Yoshihide Suga calls on wireless carriers to lower prices, with the government hoping resultant savings will stimulate consumer spending elsewhere in the economy. On Tuesday, Chief Cabinet Secretary Katsunobu Kato reiterated that call, saying there needs 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.
NTT’s share price fell as much as 5.8% on Tuesday before closing down 3%, 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 telcos continue a slide which began when Suga’s predecessor Shinzo Abe announced his resignation on Aug. 28.
Graphic – The Suga slide: https://graphics.reuters.com/NTT-DOCOMO/qzjvqnozepx/index.html
NTT spun off NTT Docomo in 1992 ahead of listing in 1998, as the government sought to stimulate competition in the telecoms sector. Buying it back would mark the end of a prominent “parent-child” listing that are frowned on in other economies but remain common in Japan.
At $40 billion, NTT’s tender offer would be Japan’s largest-ever, Refinitiv data showed.
“Post acquisition, Docomo will no longer be answerable to shareholders. If the government instructs it to cut prices, it will oblige,” Jefferies analyst Atul Goyal wrote in a client note.
Government efforts to enhance competition have included backing Rakuten Inc’s entry into the sector this year. The e-commerce firm’s low-cost plan model could suffer, however, should prices fall more broadly.
Meanwhile, government pricing pressure comes as carriers spend big to build fifth-generation services widely seen as critical 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 at Redex Research, referring to the Internet of Things. The industry is seeking “new, less regulated revenue streams,” he said.
NTT will fund the acquisition through loans from Japan’s three biggest banks, two people familiar with the matter told Reuters, declining to be identified as the matter was private. Mitsubishi UFJ Financial Group Inc will be the largest lender, the people said.
The banks declined to comment.
The total loan package including lending from others will total 4 trillion yen, Nikkei reported. NTT will later turn to longer-term loans and debt issuance, Nikkei said.
The telecoms firm had more than 1 trillion yen in cash and cash equivalents on its balance sheet at June-end.
(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)