NTT DOCOMO Inc. is planning to be converted into a wholly-owned subsidiary. According to sources, Nippon Telegraph and Telephone Corp. is planning to opt for this conversion in order to lower phone tariffs.
Acquiring Docomo Private requires NTT to buy out shares of Docomo, the one’s they don’t already own. This buy is worth $40 billion which is 4.30 trillion yen, more than 40% increase to the previous day’s closing price in Tokyo. NTT is factually owning 67% of Docomo, this proposal is guaranteed to pass by the authorities.
Docomo’s Board of Directors said that they are comfortable and in favour of being acquired by their parent company NTT which is ought to fund the purchase through loans. Back in 1998, when Docomo was spun out by NTT, it was the largest initial public offering then.
Lowering costs of mobile bill and moving towards digitization of the economy, the government services will become popular and this will be a very strategic move with the voters, said John Vail, chief global strategist, Nikko Asset Management company.
When PM Yoshihide Suga was a Chief Cabinet Secretary under Abe, he was in constant war with the mobile operators back in 2018. He encouraged Rakuten Inc. and discouraged the citizens to switch carriers. This campaign was a success in many aspects but failed to successfully introduce true competition in the market. Since he has become the Prime Minister of Japan, Suga is continuing to raise such issues.
Japan government intends to lower the prices but in a transparent way for the people to see. NTT is in talks to borrow an amount of 4.4 trillion yen to buy shares of Docomo, but the law requires the government to hold at least one-third of NTT shares. This will pose a challenge for the company to acquire new shares for funds.
Sawada said in a statement that the main reason why NTT is rushing over to buy shares of Docomo is because of its situation in the market. Docomo is said to be declining by almost a third of its earning capacity and international rivals are crushing it in the game.
Docomo suffered losses after the government urged price cuts.
NTT buying out Docomo will bring it back on its feet. The game will change with international rivals as under NTT’s control, Docomo tends to do well with a faster and efficient decision-making team in place.