(Bloomberg) — Nippon Telegraph & Telephone Corp. plans to turn its wireless carrier unit NTT Docomo Inc. into a wholly owned subsidiary, a move that may help Prime Minister Yoshihide Suga’s policy push to lower phone tariffs.
NTT will pay 3,900 yen a share to acquire the shares it doesn’t already hold, the companies said in a statement. The buyout is worth around 4.25 trillion yen ($40 billion), a more than 40% premium to Monday’s closing price in Tokyo. Given that parent NTT already controls 66% of the wireless carrier, any proposal is all but guaranteed to pass.
Docomo’s board said it’s in favor of the takeover by its parent, which will fund the purchase through borrowings. The tender offer, the largest for a Japanese company in history, is scheduled to start Sept. 30 and will be completed in the fiscal year ending March 31. When NTT spun out Docomo in 1998, it was also the biggest-ever initial public offering at the time.
The proposal to combine the former national companies comes just 15 days after Suga succeeded Shinzo Abe as the nation’s prime minister. With government documents showing data-heavy users in Tokyo pay more than three times for a monthly contract than users in Paris, Suga has made reducing phone bills charged by Docomo and Japan’s other major carriers a priority to score a quick policy win and avoid being seen as a caretaker leader, market watchers have said.
“In order to solidify his position, he must quickly deliver on some popular economic reforms and has likely already created a battle plan for a few,” John Vail, chief global strategist at Nikko Asset Management, wrote in a report earlier. “Lowering mobile phone costs will be the most popular with voters. Emphasis on the digitalization of the economy and antiquated government services is also likely popular and, thus, next on the list.”
Docomo shares, which traded without the right to the next dividend, surged as much as 18% in Tokyo. They stayed untraded for most part of the day as buy orders exceeded offers after the Nikkei reported the plan first. NTT shares, which are also trading today without the right to the next dividend, declined as much as 3.7%.
In 2018, Suga led a series of attacks against the mobile operators when he was chief cabinet secretary under Abe. While encouraging Rakuten Inc. to enter the market and scrapping fees aimed at discouraging customers from switching carriers, his campaign met with some success but did little to introduce true competition. Since first announcing his intention to take over as prime minister, he has continued to raise the issue.
On Tuesday, Chief Cabinet Secretary Katsunobu Kato reiterated the government’s interest in lowering prices in a “visible way.”
NTT will borrow about 4.3 trillion yen to finance the buyout, it said. Japanese law requires the government to hold at least one third of NTT, which would make it difficult for the company to issue new shares to raise funds. The firm had 1.09 trillion yen in cash and equivalents at the end of March.
“The deal would in the short run place a heavy burden on NTT’s finances and likely cap shareholder returns, in particular buybacks,” Mitsunobu Tsuruo, an analyst at Citi Research, wrote in a report.
NTT’s Chief Executive Officer Jun Sawada told reporters in an online press conference that NTT Communications may be moved under Docomo, ruling out any plans to take NTT Data Corp. private.
Taking Docomo over will allow NTT to better handle the negative impact of lower mobile bills, said Atsushi Takeda, chief economist at Itochu Corp. In a mid-term plan in 2018 amid Suga’s attacks, Docomo had already signaled its profits would drop until fiscal 2023.
It’s “logical” to think that the move is aimed at softening the impact on the two companies, Takeda said.
If prices decline, “it would be a boost for the current administration,” he said.
(Updates with borrowing plans in third paragraph)
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