Kakao is reportedly investigating the sale of content affiliate Kakao Entertainment, raising eyebrows across the industry as companies struggle with late initial public offering plans amid a disadvantaged market situation.
Kakao on Wednesday issued regulatory submissions with shareholders to “consider various strategic options” to enhance the value of the company and ensure sustainable growth for Kakao Entertainment, but emphasized that “no final decision has been made.”
The tech giant added that it will disclose confirmed developments within a month if necessary.
Although not a direct denial, the Cacao statement has fueled further speculation in the market that sales could be imminent, particularly following the challenges in publishing entertainment units.
According to industry sources, Cacao recently sent letters to key shareholders, including Hong Kong-based Anchor Equity Partner, Saudi Arabia’s Public Investment Fund, and Singapore’s Sovereign Wealth Fund GIC.
The valuation estimates Peg Cacao Entertainment at around 11 trillion won ($7.4 billion). The company previously secured a $1.15 trillion won investment from PIF and GIC in 2023, which was previously valued at 10.5 trillion won.
Kakao had been pursuing Kakao Entertainment’s IPO since 2019, starting with the Kakao Page Entities, but plans were repeatedly delayed due to a rebound in the “split list” and public rebound against changing market conditions. The company considered listing in the US in 2021, but sources say the company may be leaning towards sales instead as global economic headwinds are worsening.
Kakao Entertainment runs three important businesses: Talent Management, Webtoon, Web Novel Publishing and Video Production. Flagship services include Kakao Webtoon, Kakao Page and Music Streaming Platform Melon.
In 2023, the company recorded consolidated revenue of 1.81 trillion won, a decline of 3.2% per year, but operating profit increased by 16.5% to 80.6 billion won. However, the company has recorded a net loss for the third year in a row.
Its rapid expansion is driven primarily by aggressive mergers and acquisitions. In 2022, we acquired US-based platform radish and tapas for around 1 trillion won to strengthen our global content portfolio. In 2023, Kakao Entertainment also won a very public bid war for the management of K-Pop Powerhouse SM Entertainment, temporarily increasing its market valuation to 20 trillion won.
However, SM takeovers were expensive. Several key executives, including Kakao founder Kim Beom-Su, have been under legal surveillance and even detained, marking the company’s most serious crisis since its establishment. Cacao also reliance on low interest rate debt for financing for mergers and acquisitions has also attracted criticism as the economic landscape changes.
Kakao currently holds a 66.03% stake in Kakao Entertainment. Anchor Equity Partners owns approximately 12.42%, while PIF and GIC each own 5.1%. Tencent, the leading Chinese technology company, costs around 4.6%. The diverse shareholder structure can prove complexity by adjusting Kakao Entertainment’s potential sales profits.
yeeun@heraldcorp.com
