Japan's Web Portal Livedoor on the Block

LDH Corp., the Japanese Internet company that paid $930 million in dividends this year to Morgan Stanley and other investors, plans to sell its Livedoor Co. Web portal unit, four people familiar with the matter said.

LDH plans to hire Citigroup Inc. to advise on the sale of Livedoor, including its blog and online match-making sites, said the people, who requested anonymity as the talks are private. The Tokyo-based company will begin an auction for Livedoor as early as next month, they said.

The sale may free up cash for additional dividends for investors including Morgan Stanley (MS), LDH's biggest shareholder, Goldman Sachs Group Inc. (GS) and Deutsche Bank AG. The three companies received a combined 30.6 billion yen ($335 million) of dividends from LDH this year.

Morgan Stanley invested in Livedoor after the company was delisted in April 2006 as prosecutors charged its founder Takafumi Horie with fraud. Horie faces a 30-month prison sentence.

"We are considering various options to improve Livedoor's operations, which include an initial public offering and a sale," said Kiyotaka Mura, LDH's investor relations manager. "Nothing has been decided."

Morgan Stanley spokesman Natsuo Nishio declined to comment, as did Yumiko Iuchi, a spokeswoman at Citigroup Global Markets Japan Inc.

Largest Shareholder

Morgan Stanley investment unit, Hybrid Capital Second, owned 1.9 million LDH shares, or an 18 percent stake, as of Sept. 30. Morgan Stanley Japan Securities Co. also owned a 9.1 percent stake, LDH said today in a financial statement. It wasn't clear whether Morgan Stanley owned the LDH shares or held them on behalf of clients.

Hybrid Capital Second bought 1.34 million shares in LDH from Usen Corp. Chief Executive Officer Yasuhide Uno in 2007, according to a Usen statement at the time. The price wasn't disclosed. Uno bought the stake from Fuji Television Network Inc. (4676) in 2006 for 9.5 billion yen.

Horie has appealed the 30-month prison sentence he received in 2007 for securities fraud to the Supreme Court. His rise and fall captured the public's attention as the Tokyo University dropout rode the surging share price of Livedoor to become a billionaire, bid for control of the nation's biggest broadcaster, ran for public office and then was convicted for faking profits.

Nippon Life Insurance Co. (0001), banks and more than 1,800 individual investors have filed lawsuits against LDH seeking compensation for losses stemming from Horie's securities law violations.

Livedoor employs 360 people. Its Web portal site has about 22 million users, and about 3 million people use its blog site. The company's revenue rose to 4.9 billion yen in the six months ended Sept. 30, up 13 percent from a year earlier.

LDH, which posted a loss of 57.6 billion yen for the year ended March 31, as it paid settlements and set aside money to cover lawsuits, paid 85 billion yen of dividends in this year, equivalent to 86 percent of Livedoor's market value when it stopped trading in 2006.