Daum and Kakao to Merge

Daum CEO Choi Sae-hoon and Kakao co-CEO Lee Sirgoo pose at a press conference in Seoul on Monday. Daum CEO Choi Sae-hoon and Kakao co-CEO Lee Sirgoo pose at a press conference in Seoul on Monday.

Korea's No. 1 mobile messaging service Kakao is to merge with second-ranked Inernet portal Daum, creating a new giant company valued at W3.4 trillion (US$1=W1,024). That would make the merged entity, tentatively named Daum Kakao, the second biggest on the junior Kosdaq market after bio-pharmaceutical company Celltrion.

Daum and Kakao announced the plans at a press conference in Seoul on Monday. Board meetings in both companies on May 23 gave the green light to the merger, which awaits authorization from shareholders in August and will be finalized by the end of the year.

Daum CEO Choi Sae-hoon said, "We hope to generate synergy by integrating the strengths of both companies."

The merger will take the form of Kosdaq-listed Daum absorbing unlisted Kakao. But a closer look at the deal shows the back-door listing of Kakao on the over-the-counter index, with Daum issuing 43 million new shares and swapping them with Kakao stocks at a ratio of 1.556.

A 53.6 percent stake owned by Kim Beom-soo of Kakao will be swapped for a 39.8 percent stake in the merged entity, making Kim the biggest shareholder of Daum Kakao, while Daum founder and No. 1 shareholder Lee Jae-woong will become one of the top four shareholders.

Some analysts are skeptical. Although KakaoTalk is Korea's No. 1 mobile messaging service, it lags far behind Naver's Line in the global market. Daum also ranks a distant second in the domestic portal market.

englishnews@chosun.com / May 27, 2014 10:25 KST