Japan's NTT launches 4.25t yen buyout of wireless unit Docomo

Tokyo

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 (S$55 billion) and which could spark a period of mobile price cuts.

NTT will launch a tender offer for the 34 per cent 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 per cent 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 per cent stake.

NTT's share price fell as much as 5.8 per cent on Tuesday before closing down 3 per cent, while NTT Docomo ended up 16 per cent at its daily trading limit.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Mobile peers KDDI and SoftBank fell 4 per cent, with SoftBank touching record lows, as the telcos continue a slide which began when Mr Suga's predecessor Shinzo Abe announced his resignation on Aug 28.

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 is frowned on in other economies but remains common in Japan.

At 4.25 trillion yen, 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'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 said, declining to be identified as the matter was private. Mitsubishi UFJ Financial Group will be the largest lender, the people said.

The banks declined to comment.

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

The telecoms firm had more than one trillion yen in cash and cash equivalents on its balance sheet at the end of June. REUTERS