Naver shares have shot up Thursday on news that Line Corp., its Japan-focused messenger app unit, is set to combine with Yahoo Japan, Japan’s largest internet portal operator, in a mega merger that could potentially shake up the tech scene in Asia.

The two companies reportedly are considering setting up a 50/50 joint venture that would hold a controlling stake in Z Holdings, which would wholly own Yahoo Japan and Line. They could strike an agreement by the end of the month.

Naver, in a disclosure, said the deal is not “official,” adding that “Line is in discussions with Z Holdings on various areas for stronger business competitiveness" but that "nothing has been decided.” The company will later disclose any further developments.

Naver shares finished Thursday 14 percent higher at 180,000 won ($149).

The deal, if realized, would be the largest tech alliance to be forged between Korea and Japan, bringing together the largest search engine and messenger service in Japan. Who will hold more control over the merged entity is yet to be known.

Observers say the mega-merger will generate vast economies of scale that could challenge the likes of Google in Asia.

Line is Japan’s dominant messenger app. It commands a massive user base of more than 80 million, meaning eight out of 10 Japanese log into the app every day. Korea’s top portal operator Naver holds a 70 percent stake in the company.

Yahoo Japan, the biggest search engine in the country, is controlled by Z Holdings, which is 40 percent owned by the Japanese tech conglomerate SoftBank Group Corp.

Line will now have a new potential backer to finance its business growth, starting with its plans to set up an internet bank next year. SoftBank operates the $100 billion Vision Fund, the biggest venture capital fund in history, and has invested in companies like Uber, WeWork and the Korean ecommerce firm Coupang.

Naver’s Line is the leading messenger app in not only Japan but also Southeast Asia. The company has been seeking to leverage its vast consumer base to venture into fintech and other high-growth areas.

The merger is seen as part of Naver’s latest global push to reinforce its technology dominance. Lee Hae-jin, Naver’s founder who now holds the role of global investment officer, announced last month the company’s ambitions to build an artificial intelligence research belt connecting Korea, Japan with Vietnam and France to gain an edge against China and the U.S. in the global AI race. As part of this effort, Naver and Line have devoted more than 1,000 AI specialists from Korea and Japan to the new AI research unit Search & Clova.

By Jung Wook, Oh Dae-seok and Kim Hyo-jin

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