Kakao, the Korea-based company behind the KakaoTalk messaging app, is merging with Daum, the country's second largest internet portal. The deal gives Kakao a valuation of 3.1 trillion won ($3.03 billion).
Daum announced the merger in May 26th, 2014. The merger which is a stock swap arrangement, is creating Daum Kakao, the second largest company listed on the KOSDAQ, according to the reports from Yonhap News Agency.
Kakao will get three-quarters of the new company while the rest goes to Daum. Daum Kakao will issue 43 million new shares to Kakao. Kakao's founder and biggest shareholder, Kim Beom-su, will become the biggest shareholder of the new company with 22.2 percent stake. According to Daum's spokesman, Daum founder Lee Jae-woong won't be a major shareholder in the new company.
The two companies will operate independently for the time being and will gradually merge into a single entity. The deal will also unite 600 Kakao employees with 2,600 from Daum.
"Both companies have unique strengths that complement each other while sharing common values championing collaboration, openness and a strong belief in a non-hierarchical work culture. We believe that Kakao's strong market position in the mobile sphere paired with our excellent content service and 20 years of operating experience will yield powerful corporate synergy," said Daum CEO Choi Sae-hoon in a statement.
KakaoTalk has 140 million registered users worldwide wit its home country Korea as its strongest market. The chat app is estimated to be installed on over 90 percent of smartphones in Korea, and brought in $203 million in revenues and US$59 million in profits in 2013 from selling stickers and game-related purchases.
KakaoTalk has been a direct competitor to Naver's Line and Tencent's WeChat. While Kakao spent money on aggressive ad campaigns in Southeast Asia, it never sought to reach users further toward the west like Naver and Tencent. The two Kakao's rivals are more active in getting users in Latin America, Europe and others.
Kakao is investing in Southeast Asia, mainly Indonesia, the Philippines and Malaysia, as it seeks growth, said Kakao CEO Jae-Beom Lee in an interview last April.
Daum is known in Korea as a the country's favorite search engine and the entry point to the web. Daum's popularity in Korea is massive, and merging with Kakao could provide the needed boost on mobile, and it will have more source of income beside its mobile game platform. For Daum, the deal could expand its mobile offerings, mobile strategy and its peers in other countries, including Yahoo! and China’s Baidu.
Together, Kakao and Daum is becoming one of South Korea's largest Internet companies, and will be better positioned to compete against Naver.
"The merger will act as a strong growth boost for Daum, which has been struggling to keep up with Naver," said Heo Pil-seok, CEO of Midas International Asset Management Ltd.. "Kakao would have needed to consider a merger at some point, even if it had decided to go public on its own."
The number of unique visitors to Daum’s portal dropped to 26.6 million as of the end of March from 29 million at the end of April 2010, according to regulatory filings. That compares with 31.1 million for Naver as of the end of March.
The deal follows Facebook's acquisition of WhatsApp for $19 billion and Rakuten's acquisition of Viber with $900 million earlier this year.
The transaction also makes Kakao's Chairman Kim Beom-su a billionaire.