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Telecom Review recently visited with Michael Wheeler, EVP of NTT’s Global IP Network in order to get an update for the industry on NTT. They are working on initiatives that will further grow NTT’s business.

NTT DATA Corporation ("NTT DATA" or the "Company") announced that, in line with its plan to further grow NTT DATA's global business outside Japan, it has resolved at the Board of Directors meeting to combine the overseas business of NTT, Inc. ("NTT, Inc."), a wholly owned subsidiary of Nippon Telegraph and Telephone Corporation ("NTT") (the "Overseas Business Alignment") into the NTT DATA group's overseas business.

Background

The environment surrounding society is changing drastically every day. Successful corporations are required to solve evolving social issues and contribute to the global environment, while also creating and enhancing economic value. In addition, social trends, from corporate activities to people's consumption and lifestyles, are ever-changing against a backdrop of technological advancements, and digital-related investments for business growth are accelerating in all industries. As we move toward the realization of a society in which various goods and people are connected to provide new value, technologies related to Connectivity, such as Edge to Cloud (Note), are becoming increasingly important. Further, there are growing expectations for a data-driven society through secure collection and analysis of information from goods and human behavior.

Equally as significant, the competitive environment surrounding the IT market has also been changing, with companies expanding their service offerings in response to changes in society and technology.

Until now, NTT DATA has expanded the scale of its overseas business largely through M&A, in addition to solid business expansion within Japan. The company has achieved positive results in its overseas business by undertaking business structure reforms aimed at strengthening its digital responsiveness and improving profitability.

Considering changes in the business environment with a global perspective it is necessary to further accelerate collaboration among NTT group companies and to further strengthen their business competitiveness, in order to contribute to the growth of their customers' businesses and to become a truly Trusted Global Innovator that supports social infrastructure for the long term.

Objective and Aim

NTT Group will combine its overseas businesses operated by NTT DATA, NTT, Inc. and NTT Ltd., respectively, and will develop their business as a unified group of companies.

Until now, the Company has supported various corporate systems and industry infrastructures with its power to "create" based on deep client understanding and advanced technological capabilities. Combining the businesses under one operating company will enhance the value provided by the Company, while employing the power to "connect" capabilities of NTT Ltd.

Specifically, NTT DATA will combine its system integration capabilities (power to "create"), in vertical industry expertise, digital consulting, application development, and managed services capabilities with NTT Ltd.'s 'Edge to Cloud' service operation capabilities (power to "connect"), mainly in the field of data centers, networks and managed services. This will enable the company to integrate IT services and Connectivity and respond to increasingly complex and diverse client needs on a global level by centrally developing a service portfolio necessary for digital transformation.

In addition, by aggregating human resources and properties related to the overseas business of the NTT Group, the Company will enable quicker decision-making and a strong global governance model that will support our growth.

In the medium- to long-term, the combined company will work to create new social platforms and innovate services that transcend corporate and industry boundaries. This will be accomplished through comprehensive managed services, including from Edge to Cloud, which integrate IT and Connectivity to connect all things securely, while also developing innovative services globally that utilize NTT's IOWN technology to create a sustainable future.

The combined company will promote a unified understanding of global clients, make the brand more trusted around the world, achieve faster growth and increase corporate value by strengthening market competitiveness.

Specific Initiatives for Combining Overseas Business and Subsequent Group Structure

On October 1, 2022, NTT DATA and NTT will establish an overseas operating company jointly owned [55%] and [45%] by NTT DATA and NTT, respectively. This new venture will accelerate NTT collaboration in both strategic and tactical aspects to drive the growth of the overseas business.

Specifically, under a unified business strategy, the company will provide End-to-End (Note) services from infrastructure through applications and consulting. NTT's research and development will scale business in areas such as Smart World and 5G, and in the mid- to long-term, the company will work to develop advanced services that can provide environmental and social value, with the IOWN concept at its core.

In addition to establishing the combined company focused on operations outside of Japan, a domestic business company will be established in Japan under the holding company umbrella of NTT DATA in July 2023. As a global headquarters, NTT DATA will expand its strategic functions such as technology, delivery and M&A investment, and establish a structure that enables the domestic and overseas operating companies under its umbrella to promote business in accordance with the needs and laws and regulations of each region.

As a result of the fair negotiation process, the parties agreed on a shareholding ratio in the consolidated company of 51% for NTTDATA and 49% for NTT, which was calculated based on the share value, to implement specific initiatives to combine the overseas businesses. Moreover, the Company has decided to acquire additional shares in the overseas operating company based on the consideration that taking in more profits from overseas business, which are expected to grow and develop further, will contribute to increasing the value of the Company's shares. The Company has reached an agreement with NTT to acquire an additional 4% equivalent of shares in the overseas operating company for a total amount of 112 billion yen, resulting in NTT DATA holding 55% and NTT holding 45% of the overseas operating company as mentioned above.

Since this transaction is a parent-subsidiary transaction with NTT, the controlling shareholder of NTT DATA, a special committee consisting of three independent outside directors of NTT DATA was established as a measure to avoid any conflict of interest. The Company has received a report from the special committee concluding that this transaction is reasonable and will not cause any disadvantage to the minority shareholders of NTT DATA.