Kakao, Daum 'connected' for synergy

Business Technology

Kakao, Daum 'connected' for synergy

Oct. 1, 2014 - 12:15 By KH디지털2

Kakao Corp. and Daum Communications Corp., South Korea's two most-tracked IT firms since the announcement of their merger in May, made their union official Wednesday to become a new industry giant valued at close to 10 trillion won (US$9.45 billion).

The merger is in the form of Daum, the country's second-largest search engine, taking over Kakao, the provider of the popular messenger service Kakao Talk, but Kakao's market value is nearly fourfold that of Daum's estimated 2 trillion won. Kakao, in turn, which initially planned to go public next year, will get a backdoor listing through the merger on the secondary bourse, the KOSDAQ.
Daum was trading at 171,700 won, up 8.88 percent, as of 11:02 a.m. versus a 0.35 percent increase in the KOSDAQ.

Rather than having one leader, the company will be managed by two top officials from Daum and Kakao, each having equal authority. Kim Beom-su, the largest shareholder of the giant, will stay out of management affairs but will continue to "suggest business visions and directions," the company said.

Kim holds a 22.2 percent stake in the merged company, followed by a 17.6 percent stake by K Cube Holdings Co.. Maximo Pte. Ltd also holds a 9.9 percent stake.

"A large number of people, information, things, processes and more in this world still remain isolated. In this world of connections that we anticipate, we will seek to create new ways of communication that encompass new aspects of interpersonal and object-oriented communication, creating a new era in the way we connect," said Lee Sirgoo, the co-CEO and former head of Kakao.

Choi Se-hun, former head of Daum who will lead the new entity together with Lee, echoed the view, adding that Daum Kakao will join forces with various partners to bring an innovative touch to people's daily lives.

The entity, which declared to become a "mobile life platform leader," said its key business strategy is connecting "people to people," "people and information," "online and offline" and "people and objects." It said the new company will soon roll out a "new" service but declined to elaborate further.

Daum Kakao holds 27 affiliates, including its overseas branches in China, Singapore and the United States.

The company added its new logo "is representative of the young, fluid and open-minded mentality the company embraces."

"For the time being, the two will maintain respective services for users' conveniences," the company said. "As for services with similar natures, we are considering developing or merging one with another."

The two's stock swap ratio has been set at one Kakao share for 1.556 shares of Daum. The newly issued shares by the merged entity will be listed on Oct. 14 under Daum's name until the shareholders formally approve the name change to Daum Kakao on Oct. 31.

The new IT giant is expected to become the uncontested largest company on KOSDAQ with a market capitalization of more than 9 trillion won, exceeding Celltrion Inc., which as of Tuesday was valued at about 5.6 trillion won.

The merger is between two former rivals. Four years ago, Daum ambitiously claimed itself a main competitor of Kakao as it launched its own mobile messenger application, My People, which featured a voice chat service, absent in KakaoTalk at the time.

Daum employed an aggressive marketing campaign, using a TV advertisement, which was rare for an Internet firm. The ad featured a popular girl group searching for a cacao bean, with the phrase "Cacao cannot talk." The messenger, however, slowly faded out as KakaoTalk steadily gained ground in South Korea.

Kakao commands about 35 million local users for its flagship KakaoTalk in the country with a population of 50 million. It also has about 152 million users worldwide through 15 languages, including Korean, English, Japanese, Spanish, German, Arabic and Russian.

Daum, the perennial runner-up to the No. 1 portal, Naver, needed a partner like Kakao that had a wide user base. Its flagship search engine had a market share of 19.89 percent in July, far below Naver's 76.69 percent, according to data by Nielsen KoreanClick Co.

U.S. giant Google Inc. holds only a 2.06 percent market share here.

For Kakao, the merger would give it business platforms that Daum has.

But with Naver still standing tall, valued at 26.6 trillion won on the main bourse, along with its Line messenger service with an estimated 450 million users worldwide, Daum Kakao still faces daunting challenges, industry watchers said.

Kakao continues to roll out new services that can add to its revenue base, such as Kakao Pay, a simplified mobile payment system introduced last month. The service is similar to Paypal, which has been widely adopted by global e-commerce sites.

It also plans to launch a cash transaction service, Bank Wallet Kakao, this month, while joining up with more than 100 news outlets and other contents providers for the beta version of "Kakao Topic."

The united company will see some environmental changes as well. Daum-side management is expected to copy Kakao and adopt a unique anti-hierarchical work culture, where workers call each other by their first names, contrary to other typical Korean offices where people are addressed in honorific forms(Yonhap).

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