Kakao Merges into Daum, “Motivated by Limits to Standalone Growth”

KaKao, South Korea’s most popular messaging app, is to merge with Daum, Korea’s No. 2 web portal, threatening Naver as the dominant market leader

SEOUL, May 26 (Korea Bizwire) – Kakao, Korea’s largest mobile messenger service operator, decided to merge with Daum, the second-largest Internet portal in Korea after Naver, to overcome the limitation in growth within the domestic mobile industry.

On May 26, Lee Sir-goo, CEO of Kakao, admitted the criticism by the business circle that it lacks of growth engines other than Kakao games by saying, “There was an agreement among ourselves that we have hit the wall to further growth,” in a press conference announcing the union of the two companies and the creation of Daum Kakao.

Lee said, “It will take too much time for us to start new businesses one by one. As foreign rivals grow rapidly, there were serious concerns that we could fall behind in the global competition with the current pace.”

He said the back-door listing of the company through Daum was decided in this context. Kakao had plans for an IPO by May 2015. Through the merger with Daum, however, it turned itself into a second-largest company in Kosdaq to compete with Naver, the country’s biggest Internet portal operator, which also owns rival mobile messenger operator “Line.”

“To offer an IPO in the Korean stock market, it takes too much time and effort. Rather than waiting for it in the ever-changing market, it would be better to create synergy effects through the merger with Daum,” Lee said.

“Now, our aim is not to increase KakaoTalk subscribers any more. With the merger with Daum, we will achieve 10 trillion won of annual sales and long-term profit,” he added.

Officially, the merger takes that the form of Daum taking over Kakao. To merge Kakao, Daum will issue 43 million new shares to Kakao shareholders, including 33 million ordinary shares. The stock swap ratio was set at each Daum share for 1.556 shares of Kakao according to the stock prices of Daum at 72,910 won a share and Kakao at 113,429 won a share.

Once the merger completes under that ratio, Kakao will have more than 60 percent of the equity in the newly merged company and Kakao board chairman Kim Beom-su, will also chair Daum and Kakao.

Once the merger completes under that ratio, Kakao will have more than 60 percent of the equity in the newly merged company and Kakao board chairman Kim Beom-su, will also chair Daum and Kakao. (image: Kakao)

A Daum official said, “Both companies have separate strengths which the other doesn’t have and at the same time the two companies share principal values of participation and openness, spirit of sharing and horizontal enterprise culture. With the integration of Kakao’s powerful competitiveness in mobile platform and Daum’s high-quality contents and service business know-how and expertise we will create strong synergies.”

Kakao’s Lee said, “Through the merger, we could secure a powerful engine to cope with the ever-changing global market by integrating core competitiveness of the two companies. The new company will keep growing as a platform business provider for communications, information and lifestyle covering all the sectors of IT, not to mention of the mobile industry.”

Written by John Choi (johnchoi@koreabizwire.com)

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