Japans former state telecoms monopoly is taking the countrys largest carrier ntt docomo private. nippon telegraph & telephone had listed the ntt docomo mobile unit more than two decades ago to add competition to the sector hoping that would eventually lower prices. it never became a reality.
Ntts tender offer to buy the remaining 34 per cent stake it does not own of docomo values the deal at more than 4tn ($38bn) japans biggest ever. ntt will offer 3,900 per share, which is a more than 40 per cent premium to mondays closing price. that is well above the 30 per cent premium that customarily features in tender offers in the local markets.
Mobile phone bills in japan are political. the premium and timing about two weeks after yoshihidesuga took over as prime minister reflect the urgency of the governments drive to cut mobile phone charges. mr suga called for price cuts of about 40 per cent, even before his inauguration. that made docomo brace for falling profits for the next three years.
Once private and under ntts control, there would be less resistance to those cuts. not having to seek shareholder approval makes it easier to ignore declining margins.
A price cut at ntt docomo which has nearly 50 per cent of the local mobile phone subscriptionmarket would mean rivals kddi and softbank will have little choice but to follow. for japanese consumers, lower phone bills may finally happen.
But for the sectors investors, the deal could be the final blow. with margins squeezed by long-running mobile price wars, the sector has spent billions on next-generation mobile 5g networks in the years leading up to this years launch. passing the costs down to customers was one of the few options left to recoup those investments.
As for ntts shareholders, a huge debt pile is about to surface. it will need to borrow more than 4tn to finance the deal. it had just about 1tn in cash and equivalents earlier this year. there is little leeway for extra costs.
Worse, ntts free float is limited by local laws that require the government to hold at least one-third of its shares. any hopes of a buyback have just been pushed further out of reach. this record take-private deal should serve as a renewed warning to investors that, in japan, telecom stocks are not defensive investments.
Our popular newsletter for premium subscribers best of lex is published twice-weekly. please sign up here.