Naver, which holds a 73 percent stake in Line, said it and Japanese telecom giant Softbank, which owns 45 percent of Yahoo's parent company Z Holdings, have been discussing a merger deal.
"Line has been considering various proposals to boost business competitiveness with Z Holdings," Naver said. "Details haven't been confirmed yet.
Line is the most popular chat app in Japan with 80 million users, posting 207.1 Japanese yen ($1.9 billion) in sales in 2018. Z Holdings has 50 million users and generated 954.7 billion yen of revenue last year.
If completed, the merged entity could become Japan's biggest internet platform with chat, search, e-commerce and payment apps with over 100 million users.
Market watchers said the deal is expected to create synergy between the messaging app Line and news and shopping site Yahoo Japan.
"If the deal is finalized, it would save costs from market competition between the two companies and create synergy in a wide range of areas, including search, shopping, simple payment, messenger and content," Lee Mun-jong, an analyst at Shinhan Investment, said.
Shares of Naver soared 13.29 percent to 179,000 won on the Seoul bourse following media reports on the proposed merger between Line and Yahoo Japan. (Yonhap)