Vodafone, the mobile phone giant that wrote down assets of £28bn this week, revealed last night that it is in talks to sell its Japanese arm to Softbank.
The deal could be worth up to £6bn to the UK company, though analysts suggested a figure of closer to £5bn after taking a close look at the business.
Gossip about a possible deal spread across the City yesterday afternoon and the moribund shares rallied hard. By close of play, they were up 9.5p at 121.5p, a welcome relief to investors who are highly concerned about the direction of the company.
As speculation mounted, Vodafone was forced to issue a statement confirming that it is in talks about a "potential sale" of the Japanese arm.
Although the company said the discussions "may or may not lead to a transaction" it is understood that talks are at a fairly advanced stage. A deal is likely this month, it is understood.
Softbank is the largest provider of high-speed internet access in Japan. Led by the innovative entrepreneur Masayoshi Son, it has had its sights on the mobile phone industry for some time.
Vodafone's chief executive Arun Sarin is under considerable pressure from investors, who are worried about the company's ability to increase profits. This week he wrote off assets of £28bn - an accounting measure that was perceived as highly negative. A sudden injection of cash would be useful to Mr Sarin, though sources close to Vodafone insisted there is no connection between the write down and this deal. It is thought that Vodafone's usual bankers, UBS, are advising on the transaction.
Vodafone first got into Japan when it bought Air Touch in 1999. It owns nearly 98 per cent of the Japanese arm, which has almost 15 million customers - roughly 17 per cent of the mobile phone market.
Until now, Vodafone had denied suggestions that it was looking to offload the Japan business, which it had described as a "strategic asset".
Japan is regarded as the most advanced mobile phone market in the world, with a large number of affluent consumers constantly on the lookout for new gadgets.
Vodafone has lately been struggling to compete in Japan, under heavy pressure from DoCoMo and KDDI. The 3G service that it launched in 2004 has not been as popular as hoped.
Paul Kavanagh at the stockbrokers Killick & Co said: "I think Vodafone has singularly failed to achieve success in Japan."
One of Vodafone's problems was that it tried to use similar handsets in Japan as those that are for sale elsewhere. But Japan was so far ahead technologically that the handsets were seen as outdated, and sales flopped.
Fanos Hira, the telecom analyst at Bear Stearns, said in a note to clients last night: "A disposal would signal a retrenchment in strategy by Vodafone."
Investors seemed pleased by the company's willingness to listen to their concerns. Some have also been pressing it to sell its 45 per cent stake in Verizon Wireless in the US, calls it has so far resisted.
Yesterday's announcement was taken as a clear indication that Vodafone is prepared to scale back its global ambitions, possibly dismantling the empire built by Sir Chris Gent in the process.
Softbank made an approach to buy the Japanese arm last year, it is thought, but could not agree a price. Last week Softbank bought a large stake in Betfair, the internet betting exchange.
The land of the rising Son
Masayoshi Son, the billionaire founder, president and chief executive of Softbank, is known as the Japanese Bill Gates in his home country. Once scorned by Japan's Establishment, Mr Son now regularly sits down to chat with the country's prime minister.
An ethnic Korean, Mr Son assumed the name Yasumoto when growing up in Japan to conform to the country's policy of assimilation. As a 16-year-old in America in the 1970s he used his Korean name once more. While a student at the University of California, he invented the prototype for the Sharp Wizard handheld organiser. Sharp's largesse for the patent was almost $1m (£570,000), which he used in 1981 to bankroll his Softbank software distribution business in Japan.
In its first year, Softbank landed a key contract with one of Japan's biggest consumer electronics retailers, Joshin Denki, which gave Mr Son a foothold to secure exclusive distribution rights for much of his company's software. Tokyo-based Softbank grew with almost indecent speed, and now has more than 165 subsidiaries and stakes in more than 100 internet-related companies, including almost 10 per cent of the Yahoo! internet search engine. Its reach encompasses e-commerce, internet infrastructure, information technology, fixed-line telephony, financial services and venture capital, marketing and publishing.
Mr Son, 48, listed Softbank in 1994 but reportedly still owns around 31 per cent of a group worth around £6.3bn. He merged it with his private asset management company five years later.
By Gary ParkinsonReuse content