South Korea's Kakao Seeking Backdoor Listing by Combining With Daum

Kakao Corp. and stock exchange-listed Daum Communications Corp. said Monday that Kakao shareholders will get 1.556 Daum shares for each Kakao share they own.

If the deal gets approval from a meeting of shareholders in August, shares in the new entity called Daum Kakao will start trading in October. Kakao's founder Brian Kim will be the largest shareholder in the new entity. Its market capitalization is expected to be more than 3 trillion won ($2.9 billion).

The deal is the latest in series of mergers and acquisitions in the mobile messenger app market. Earlier this year, Facebook announced a takeover of WhatsApp for $19 billion and Japan's Rakuten said it will buy Viber for $900 million.

Kakao Talk is South Korea's most popular mobile messaging service for smartphones. But it has struggled in overseas markets dominated by other mobile apps such as WhatsApp, Line and WeChat.

Daum's web portal has been a perennial runner-up to Naver, which dominates the South Korea's Internet market. Its mobile Internet services, such as a messenger app, have been unpopular.

Naver owns Line, which has about 400 million users. The app has been a cash cow for Naver and helped it expand overseas while also adding to competition for Daum and Kakao.

Daum CEO Saehoon Choi said the two companies offer strengths that each is in need of.

Daum, which has 2,600 employees, gets a boost in its mobile service while Kakao, with 600 staff, gets additional resources, such as engineers at Daum, to challenge Line and other messaging apps overseas.

"There was a consensus that we will certainly face a limit in growing organically. It takes too much time to recruit employees one by one and to start a new business one by one," Sirgoo Lee, CEO at Kakao told reporters. "If we work with Daum, we will save time and upgrade services."

The two CEOs declined to discuss their business plans overseas.

Hana Daetoo Securities said in a report that Kim, the Kakao founder, will control 33 percent of Daum Kakao. The report said Daum's founder Lee Jae-woong's stake in the new entity will be 6 percent.