SEOUL -- The proposed union of Yahoo Japan and the Line messaging app has received a warm welcome from investors in South Korea, home to Line's parent Naver.

Naver's stock rose sharply on Thursday, after Nikkei reported that the company is in the final stages of negotiations with Z Holdings, the SoftBank Group-owned parent of Yahoo's Japanese sites. Naver jumped more than 12% from its close on Wednesday.

The ambitious plan to bring two major internet players under one corporate roof has generated strong interest in South Korea amid severely strained relations with Japan. Ties between the governments are often described as being in their worst shape since the end of World War II, due to a dispute over wartime labor and Tokyo's restrictions on technology exports to its neighbor.

Market watchers, however, see the possible merger opening up a much-needed growth path for the South Korean group.

SoftBank, which owns 45% of Z Holdings, and Naver, which owns 73% of Line, hope to clinch a deal by the end of the month. One idea on the table calls for setting up a new 50-50 joint venture between SoftBank and Naver. This entity would become the top shareholder in Z Holdings, owning about 70%. The companies are discussing making the joint venture a consolidated SoftBank subsidiary.

Ahn Jaemin, an analyst at NH Investment & Securities, said the combination of a major portal site like Yahoo with the chat app would give Naver a strong competitive edge and open the door for Line to become a global internet powerhouse.

Similarly, KB Securities issued a statement saying Naver can boost its presence in the world market through its proposed alliance with SoftBank.

Though Naver is the largest internet company in South Korea -- where it controls 90% of the search market, keeping Google at bay -- it has limited room for growth in a country of less than 52 million consumers. Likewise, while Line boasts large user bases in Japan and Taiwan, it has struggled to parlay its popularity into profits.

The Line business accounted for about 35% of Naver's sales in 2018, which grew 19.4% on the year to 5.58 trillion won ($4.77 billion). But Line logged a net loss for the first nine months of this year, largely due to hefty upfront investments in cashless payment operations.

Naver, which has competitive targeted ad technology and offers a range of online services including cloud computing, has been actively trying to widen the scope of its operations. On Nov. 1, it created a financial services joint venture with South Korean brokerage -- the latest step in its drive to become an online conglomerate with payment, securities, insurance and credit card segments.

When it comes to the Line-Yahoo talks, a Naver spokesperson said the company had nothing to add to Line's own statement on the matter. But the South Korean company has apparently decided that SoftBank's broad portfolio of international startups can help Line expand worldwide.