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Rakuten, a Japanese conglomerate dealing with huge debt, is exploring combining its financial units to foster collaboration.
The online retailer is exploring having its different financial units: banking, securities, credit card, and insurance operations, into a single unit within the company, according to a Bloomberg report.
This restructuring plan appears to instill confidence among shareholders. The shares of the company are up 3% in the last 24 hours. The company has been dealing with increased debt, which has dampened its financial outlook among shareholders.
Shareholders appear confident with the performance of the company’s fintech business. The debt-ridden company has been dealing with unprofitability in its mobile phone carrier operations.
Rakuten Plans to Consolidate Operations under a Single Unit
According to close sources, the company will only proceed with an initial public offering of its securities unit once the integration of these units is realized. Additionally, the banking division of the company will remain operating as a listed company after the reorganization is complete.
If this restructuring plan is successful, Rakuten Securities Holdings Inc., Rakuten Card Co., and other units will operate under the single umbrella of Rakuten Bank Ltd. The financial units of the company have been posting solid growth, and the merger seeks to aid the financial position of the company’s mobile business.
According to analysts at Bloomberg, this planned merger is similar to having a back-door listing for the company’s securities and card businesses through Rakuten Bank. As such, investors will realize more value for their shares in the company as they will have ownership over more operations in the company.
“This could lead to greater synergies and boost the combined value of the three units toward the high end of our estimates, at about ¥1 trillion,” the Bloomberg analysts said.
Besides posting gains for Rakuten Group’s shares, the stock of the company’s banking division also increased by over 3%. This jump was the largest recorded by the company since its listing around a year ago.
Rakuten’s Struggling Mobile Business
Rakuten Group has previously been plagued by the struggles of its mobile business unit. The Japanese conglomerate posted a net loss of 339.4 billion yen, equivalent to $2.2 billion for the financial year that ended in December.
The recent losses marked the fifth consecutive annual loss suffered by the company as a result of the struggling mobile business.
The parent company also has around ¥700 billion in bonds that are due in 2024 and 2025. The statistics come after the company reported losses for five consecutive years. Last year, the company also announced it would no longer list its brokerage division as earlier planned.
Rakuten unveiled its mobile service network in 2020. At the time, the ecommerce and fintech company said its mobile business would disrupt the third-largest telecoms market in the world. However, this business fell short of expectations and it has instead, dealt a major blow to the company’s finances.
The founder and CEO of the company, Hiroshi “Mickey” Mikitani, initially planned that the mobile service would offer a low-cost network. With this network, users could leverage cloud-based software and cost-friendly hardware. However, these plans did not succeed as infrastructure costs at the company spiraled out of control.
The fast rollout of this division has led to significant damage to the operations of the parent company. The company has a massive debt hole of $5.4 billion that is due in the next two years.
The company might also be in for a tough year if its consolidation plan fails to materialize. Investors are closely watching to see whether the company will achieve its goal of having the mobile unit break even.
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