| 29. |
Business Combinations |
Acquisition in 2015
Acquisition of MixRadio
On March 16, 2015, the Group acquired MixRadio, a music streaming service, from Microsoft Mobile Oy. The acquisition of MixRadio allows the Group to expand the range of services. The Group determined that the acquisition of MixRadio is a business combination in accordance with IFRS 3, as the Group acquired inputs and processes, such as music rights and the trade name of MixRadio, with which principal activities have been commenced. The valuation of the fair values of the assets acquired and the liabilities assumed was completed as of December 31, 2015, and remained unchanged as compared to the preliminary assessment at the time of acquisition.
The Group changed its strategic decision and decided to focus on its core LINE business and portal segment in the fourth quarter of 2015. As of December 31, 2015, the Group considered the abandonment of the MixRadio business to be probable. Therefore, as the future cash flows were expected to be negative, goodwill allocated to MixRadio CGU was fully impaired. Intangible assets with definite useful life and property and equipment were also fully impaired. As a result of the subsequent abandonment on March 21, 2016, the MixRadio was retrospectively classified as a discontinued operation in the Consolidated Statements of Profit or Loss. Refer to Note 23 Discontinued Operations for further details.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of MixRadio as of the date of acquisition were as follows:
| (In millions of yen) | ||||
| Fair value recognized on acquisition |
||||
|
Assets |
||||
|
Property and equipment |
39 | |||
|
Intangible assets |
||||
|
Technology |
845 | |||
|
Music rights |
543 | |||
|
Trademarks |
157 | |||
|
Customer relationships |
109 | |||
|
Other intangible assets |
4 | |||
|
|
|
|||
| 1,697 | ||||
|
|
|
|||
|
Liabilities |
||||
|
Trade and other payables |
1,544 | |||
|
Other liabilities |
552 | |||
|
|
|
|||
| 2,096 | ||||
|
|
|
|||
|
Total identifiable net liabilities at fair value |
(399 | ) | ||
|
|
|
|||
|
Goodwill |
2,698 | |||
|
|
|
|||
|
Total consideration |
2,299 | |||
|
|
|
|||
The Group paid 2,299 million yen in cash, which was included as part of cash flows from investing activities in the Consolidated Statements of Cash Flows, and assumed certain liabilities in acquiring MixRadio. Goodwill of 2,698 million yen represented the value of expected synergies arising from the acquisition.
As part of the business combination, the Group also acquired an assembled workforce from MixRadio. However, the assembled workforce did not meet the criteria for recognition as an intangible asset under IAS 38. All of the goodwill recognized is expected to be deductible for income tax purposes.
From the date of acquisition, MixRadio has increased loss from discontinued operations, net of tax, of the Group by 7,588 million yen, which includes the impairments discussed in Note 11 (1), (3) Impairment. Because MixRadio was classified as a discontinued operation, revenues and expenses from continuing operations are not impacted. If the combination had taken place on January 1, 2015, the loss for the year would have been 8,827 million yen (unaudited) for the year ended December 31, 2015. Because MixRadio was classified as a discontinued operation, revenues and expenses from continuing operations are not impacted.
Transaction costs of 74 million yen have been expensed and are included in “Other operating expenses” in the Consolidated Statements of Profit or Loss.
Acquisition in 2016
Acquisition of M.T. Burn
On February 29, 2016, the Group acquired 50.5% of the voting shares of M.T. Burn Inc., (“M.T. Burn”), an unlisted company based in Japan, specialized in developing and providing a native mobile advertising platform, “Hike”. M.T. Burn became a consolidated subsidiary. The Group acquired M.T. Burn for the purpose of enhancing the Group’s knowledge and technological capability for advertisement. The final purchase price allocation of M.T. Burn was completed in the second quarter of 2016.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of M.T. Burn, which are measured at fair value as of the date of acquisition except for limited exceptions in accordance with IFRS, were as follows:
| (In millions of yen) | ||||
| Fair value recognized on acquisition |
||||
|
Assets |
||||
|
Cash and cash equivalents |
87 | |||
|
Trade receivables |
83 | |||
|
Customer relationships |
401 | |||
|
Software |
26 | |||
|
Deferred tax assets |
88 | |||
|
Other assets |
1 | |||
|
|
|
|||
| 686 | ||||
|
|
|
|||
|
Liabilities |
||||
|
Trade and other payables |
78 | |||
|
Other financial liabilities, current |
50 | |||
|
Other financial liabilities, non-current |
210 | |||
|
Deferred tax liabilities |
149 | |||
|
Other liabilities |
13 | |||
|
|
|
|||
| 500 | ||||
|
|
|
|||
|
Total identifiable net assets at fair value |
186 | |||
|
|
|
|||
|
Non-controlling interest |
(92 | ) | ||
|
Goodwill |
416 | |||
|
|
|
|||
|
Total consideration |
510 | |||
|
|
|
|||
All consideration was paid in cash. The fair value of the trade receivables was 83 million yen. The gross contractual amounts of the trade receivables were not materially different from the fair value determined as part of the purchase price allocation.
Non-controlling interest in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at the present ownership interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets at the acquisition date.
Goodwill of 416 million yen represented the value of expected synergies arising from the acquisition and was allocated entirely to the LINE business and portal segment. None of the goodwill recognized was expected to be deductible for income tax purposes.
From the date of acquisition, M.T. Burn had contributed 252 million yen to revenue and had reduced profit from continuing operations of the Group by 1,305 million yen for the year ended December 31, 2016. If the combination had taken place on January 1, 2016, revenue for the Group would have been 140,841 million yen (unaudited) and profit from continuing operations for the Group would have been 9,076 million yen (unaudited) for the year ended December 31, 2016.
Acquisition related transaction costs of 5 million yen have been expensed and are included in “Other operating expenses” in the Group’s Consolidated Statements of Profit or Loss.
| (In millions of yen) | ||||
|
Analysis of cash flows on acquisition: |
||||
|
Total consideration related to the acquisition |
(510 | ) | ||
|
Net cash and cash equivalents acquired at the acquisition date |
87 | |||
|
|
|
|||
|
Net cash flows on acquisition (included in cash flows from investing activities) |
(423 | ) | ||
|
|
|
|||
Acquisition in 2017
Acquisition of NextFloor Group
On July 24, 2017, the Group acquired 51.0% of the voting shares of NextFloor Corporation. (“NextFloor”), an unlisted company based in Korea, specializing in developing and publishing smartphone games. As a result of the acquisition, the Group obtained control, and NextFloor and its subsidiaries (“NextFloor Group”) became consolidated subsidiaries of the Group. The Group acquired NextFloor for the purpose of acquiring an organizational structure to develop and operate mainly middle core game contents. The valuation of the fair values of the assets acquired and the liabilities assumed was completed in the fourth quarter of 2017 and remained unchanged as compared the preliminary assessment at the time of acquisition.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of NextFloor Group, which are measured at fair value as of the date of acquisition except for limited exceptions in accordance with IFRS, were as follows:
| (In millions of yen) | ||||
| Fair value recognized on acquisition |
||||
|
Assets |
||||
|
Cash and cash equivalents |
1,946 | |||
|
Trade receivables |
335 | |||
|
Other financial assets, current |
307 | |||
|
Other financial assets, non-current |
754 | |||
|
Property and equipment |
145 | |||
|
Intangible assets |
||||
|
Software |
153 | |||
|
Publishing rights |
1,640 | |||
|
Other intangible assets |
277 | |||
|
Investments in associates |
805 | |||
|
Other assets |
320 | |||
|
|
|
|||
| 6,682 | ||||
|
|
|
|||
|
Liabilities |
||||
|
Trade and other payables |
404 | |||
|
Other financial liabilities, current |
123 | |||
|
Other financial liabilities, non-current |
63 | |||
|
Deferred tax liabilities |
391 | |||
|
Other liabilities |
264 | |||
|
|
|
|||
| 1,245 | ||||
|
|
|
|||
|
Total identifiable net assets at fair value |
5,437 | |||
|
|
|
|||
|
Non-controlling interest |
(2,664 | ) | ||
|
Goodwill |
3,154 | |||
|
|
|
|||
|
Total consideration |
5,927 | |||
|
|
|
|||
All consideration was paid in cash except for the loan receivables of 1,976 million yen from NextFloor to the Group, which was converted into the common shares of NextFloor. The fair value of the trade receivables was 335 million yen. The gross contractual amounts of the trade receivables were not materially different from the fair value determined as part of the purchase price allocation.
Non-controlling interest in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at the present ownership interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets at the acquisition date.
Goodwill of 3,154 million yen represented the value of expected synergies arising from the acquisition and was allocated entirely to the LINE business and portal segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
From the date of acquisition, NextFloor Group had contributed 1,058 million yen to the revenue of the Group and had reduced profit from continuing operations of the Group by 947 million yen.
Transaction costs of 18 million yen have been expensed and are included in “Other operating expenses” in the Group’s Condensed Consolidated Statement of Profit or Loss.
| (In millions of yen) | ||||
|
Analysis of cash flows on acquisition: |
||||
|
Total consideration related to the acquisition |
(5,927 | ) | ||
|
Debt equity swap |
1,976 | |||
|
Net cash and cash equivalents acquired at the acquisition date |
1,946 | |||
|
|
|
|||
|
Net cash flows on acquisition (included in cash flows from investing activities) |
(2,005 | ) | ||
|
|
|
|||
Acquisition of FIVE Inc.
On December 15, 2017, the Group acquired 100.0% of the voting shares of FIVE Inc. (“FIVE”), an unlisted company based in Japan, and FIVE became a consolidated subsidiary of the Group. FIVE is specialized in developing, selling and operating a video advertising platform for smartphones. The Group acquired FIVE for the purpose of utilizing FIVE’s technological capability and resources for video advertisement and enhancing the Group’s video advertising for LINE services such as “LINE Ads Platform”. The valuation of the fair values of the assets acquired and the liabilities assumed was completed in the forth quarter of 2017.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of FIVE, which are measured at fair value as of the date of acquisition except for limited exceptions in accordance with IFRS, were as follows:
| (In millions of yen) | ||||
| Fair value recognized on acquisition |
||||
|
Assets |
||||
|
Cash and cash equivalents |
231 | |||
|
Trade and other receivables, current |
307 | |||
|
Other financial assets, non-current |
10 | |||
|
Property and equipment |
9 | |||
|
Technology |
391 | |||
|
Other assets |
7 | |||
|
|
|
|||
| 955 | ||||
|
|
|
|||
|
Liabilities |
||||
|
Trade and other payables |
288 | |||
|
Other financial liabilities, current |
50 | |||
|
Deferred tax liabilities |
123 | |||
|
Other liabilities |
44 | |||
|
|
|
|||
| 505 | ||||
|
|
|
|||
|
Total identifiable net assets at fair value |
450 | |||
|
|
|
|||
|
Goodwill |
4,996 | |||
|
|
|
|||
|
Total consideration |
5,446 | |||
|
|
|
|||
All consideration was paid in cash. The fair value of the trade receivables was 306 million yen. The gross contractual amounts of the trade receivables were not materially different from the fair value determined as part of the purchase price allocation.
Goodwill of 4,996 million yen represented the value of expected synergies arising from the acquisition and was allocated entirely to the LINE business and portal segment. None of the goodwill recognized was expected to be deductible for income tax purposes.
From the date of acquisition, FIVE had contributed 68 million yen to the revenue of the Group and had reduced profit from continuing operations of the Group by 4 million yen.
Transaction costs of 11 million yen have been expensed and are included in “Other operating expenses” in the Group’s Consolidated Statements of Profit or Loss.
| (In millions of yen) | ||||
|
Analysis of cash flows on acquisition: |
||||
|
Total consideration related to the acquisition |
(5,446 | ) | ||
|
Net cash and cash equivalents acquired at the acquisition date |
231 | |||
|
|
|
|||
|
Net cash flows on acquisition (included in cash flows from investing activities) |
(5,215 | ) | ||
|
|
|
|||
If the business combinations of NextFloor Group and FIVE had taken place on January 1, 2017, revenue for the Group would have been 168,915 million yen (unaudited) and the profit from continuing operations for the Group would have been 6,701 million yen (unaudited) for the year ended December 31, 2017.
Other business combinations
There were no other significant business combinations for the year ended December 31, 2017.