Rakuten Inc. (4755), the Japanese online retailer controlled by billionaire Hiroshi Mikitani, is buying the Viber Internet messaging and calling service for $900 million as it moves into social networking.
Viber will provide a distribution channel for Rakuten’s digital products, Mikitani said at a briefing in Tokyo yesterday. Rakuten also hopes to create a game platform on closely held Viber, which has 300 million users of its instant messaging and free Internet phone services.
The acquisition will help Rakuten compete with Naver Corp. (035420)’s Line service and Tencent Holdings Ltd. (700)’s WeChat, which both combine instant messaging with shopping and gaming. Rakuten, which wants to have 70 percent of its transactions come from overseas by as early as 2020, recently bought stakes in social-network operator Pinterest Inc. and digital book seller Kobo Inc. as Mikitani tries to boost sales after missing analyst estimates for two straight years.
“As smartphones become a more important communication tool than personal computers, Rakuten needs to find a way to link smartphones to its businesses,” said Naoki Fujiwara, a Tokyo-based chief fund manager at Shinkin Asset Management Co. “This deal is probably aimed at linking the two.”
The acquisition is being financed through bank borrowing and is expected to close in March, Mikitani said. Rakuten had cash and near-cash items worth 345 billion yen ($3.4 billion) as of Sept. 30, almost quadruple the amount at the end of 2011, according to data compiled by Bloomberg.
Rakuten wants to capitalize on Cyprus-based Viber’s free messaging, paid stickers and games to expand its current base of about 225 million members, he said.
“Viber understands how people actually want to engage and have built the only service that truly delivers on all fronts,” Mikitani said in a statement. “This makes Viber the ideal total consumer engagement platform for Rakuten.”
Rakuten Ichiba, the Tokyo-based company’s most-popular service, connects merchants to customers shopping for toys, electronics and clothing as well as selling Japanese goods to customers overseas. Rakuten controlled 27.7 percent of Japan’s Internet retailing market as of last year, according to data from researcher Euromonitor International.
Last year, Rakuten acquired digital content platform Viki Inc. In 2012, it acquired Wuaki.tv, a Europe-based video-on-demand and streaming service, and led a group that acquired a minority stake in Pinterest for $100 million.
Rakuten rose 1.2 percent to close at 1,657 yen in Tokyo trading yesterday. The stock has gained 5.95 percent this year, compared with a 9.1 percent drop in the broader Topix index.
Mikitani is Japan’s third-richest man with a net worth of $9.2 billion, according to the Bloomberg Billionaires Index. His company also competes for online sales with Yahoo Japan Corp., whose biggest shareholder is billionaire Masayoshi Son’s SoftBank Corp.
Viber allows people to talk and text on mobile phones without paying a fee. It was developed by Viber Media, which was founded in February 2010, and is now available in 193 countries, according to its website.
“There was a sense that we can accelerate the growth of our company by tapping into Rakuten’s user base in various countries,” said Viber Chief Executive Officer Talmon Marco, a co-founder whose family owns 11.4 percent of Viber Media.
“We would be able to continue to build Viber, continue to maintain the mentality and speed of a startup while having support.”
Goldman Sachs Group Inc. (GS) acted as sole financial adviser to Viber.
The app competes in the market for Internet phone calls and messaging with Microsoft Corp. (MSFT)’s Skype service, WhatsApp Inc. and Tencent Holdings Ltd.’s QQ instant-messaging service and WeChat. QQ had 816 million monthly active users at the end of September, almost seven times the population of Japan.
“You just need to look at WeChat,” said Mark Tanner, the founder of China Skinny, a Shanghai-based research and marketing agency. “It’s creeping into every part of Chinese commerce, this WeChat app, and Viber will probably do the same type of thing.”
Rakuten yesterday posted annual earnings that were 21 percent below analyst projections, its second straight year of missing analyst estimates. Net income was 42.9 billion yen ($421 million) in 2013, missing the 54.2 billion-yen average of 21 analyst estimates compiled by Bloomberg.
Full-year sales rose 17 percent to 518.6 billion yen.
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