Photo/Illutration LY Corp. President Takeshi Idezawa, left, at a news conference in Tokyo on May 8 with Jungho Shin, who will resign as representative director of the company in June (Kentaro Uechi)

The operator of the Line messaging app plans to stop outsourcing business to South Korea’s Naver Corp. following a massive leak of personal information through cyberattacks.

All contracts for outsourcing service development and systems operation to Naver will be terminated, Takeshi Idezawa, president of service provider LY Corp., said on May 8.

“Our relationship (with Naver) will become extremely tenuous in terms of business,” Idezawa told a news conference where the company announced its financial results.

LY expects to spend about 15 billion yen ($97 million) on performing tasks, previously outsourced to Naver, in-house or switching to other contractors.

LY, which was created through the merger of Line Corp. and Yahoo Japan Corp. in October, announced the leak of personal information, including data about Line users, in November.

The personal information was illegally accessed through a subsidiary of Naver, LY’s major shareholder.

Line was outsourcing business to the Naver subsidiary, and the two companies shared a computer network.

In its first administrative guidance in March, the communications ministry called on LY to consider reviewing its capital relationship with Naver.

Ministry officials believe that Line failed to properly supervise the Naver subsidiary because the company was under Naver’s control through shareholding.

In the second guidance in April, the communications ministry told LY to establish plans to reduce or terminate outsourcing contracts to the South Korean information technology giant.

At the May 8 news conference, Idezawa said LY is “strongly” requesting Naver reconsider the capital affiliation.

Line was originally established as a Japanese subsidiary of Naver. Its popular free messaging app has about 96 million users.

A Holdings Corp., an intermediate holding company equally owned by Naver and Softbank Corp., owns about 64 percent of LY shares.

It remains unclear whether Naver’s influence over LY will weaken.

A representative of Naver has argued that the communications ministry’s administrative guidance calling for reducing its capital grip over LY is “extremely unusual.”

Softbank has been negotiating with Naver to raise its equity stake in LY, but the South Korean company appears to be opposed, sources said.

LY, which has three representative directors, also announced May 8 that Jungho Shin, who is dubbed the creator of the Line app, will resign as representative director in June.

Shin, originally from Naver, will stay in his current position as chief product officer.

After he resigns, LY’s representative directors will be Idezawa and Chairman Kentaro Kawabe.

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