NTT Eyes Asset Sales, Including Data Centers, After $40B Docomo Buyout

Reed Stevenson and Grace Huang (Bloomberg) -- Nippon Telegraph & Telephone Corp.’s 4.25 trillion yen ($40 billion) buyout of wireless unit NTT Docomo Inc. will make it easier for the recombined company to sell assets, generate enough cash to deliver dividends and repay debt incurred from financing the deal, Chief Executive Officer Jun Sawada said.

The merger will also help the Tokyo-based telecommunications giant keep up share buybacks and invest aggressively overseas, Sawada said in an interview. Greater cost savings as well as sales and securitization of real estate, data centers and other assets will deliver enough cash to revamp the business while rewarding shareholders and boosting its overseas portfolio, according to him.

“We want to make our existing assets more liquid and use that to invest in new businesses,” he said Tuesday.

The merger between the telecommunications behemoths effectively ends an experiment that started in 1998 when NTT sold Docomo shares in the biggest-ever initial public offering at the time. It gave investors a chance to bet on the fast-growing sector, while Docomo executives went on a buying spree overseas, using the influx of cash to extend Japan’s then-lead in mobile services to the rest of the world. Even though they blew billions of dollars on minority stakes in carriers that eventually failed to deliver on their promise, NTT will keep pushing to expand overseas, Sawada said.

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“We want Docomo to invest abroad again,” Sawada said, adding that he wants Docomo to work closely with NTT Communications, the network and cloud division of NTT, on an overseas strategy. “But it depends on how it’s done,” he said.

NTT shares rose 3.3% on Wednesday, the most in almost two months and outpacing other telecommunications stocks in Tokyo.

Sawada has already made clear that he wants to more closely integrate Docomo and NTT Communications. While that could happen in as little as a year, the details still need to be worked out, he added. Although the focus of any overseas expansion would be to offer services to other businesses, they are also looking at consumer-oriented opportunities, including cashless payments and communications.

NTT will pay 3,900 yen a share to acquire the shares it doesn’t already hold, the companies said in a statement last week. That’s a more than 40% premium to the price before the deal was announced. Given that parent NTT already controls 66% of the wireless carrier, any proposal is all but guaranteed to pass.

Sawada said that there are already signs that NTT Docomo shareholders are likely to use the influx of cash to buy NTT shares. The tender offer, the largest for a Japanese company in history, started Sept. 30 and the merger is expected to be completed within the fiscal year ending March 31.

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“Docomo shareholders shifting to NTT shares is a factor,” Mitsushige Akino, a director at Ichiyoshi Asset Management Co. in Tokyo, said of the share gains. “5G investment is huge, and having the strength to do that makes a huge difference.”

It was a sense of urgency that drove NTT to carry out the deal now, Sawada said. Despite having the largest share in Japan, Docomo had slipped to third place in terms of its earning power, and international rivals were growing in strength.

“The bigger risk was not to do anything,” Sawada said. “We had to do it in order to boost profitability.”