Questions linger on Kakao-Daum merger

Daum CEO Choi Sae-hoon, left, shakes hands with Kakao’s chief Lee Sirgoo after announcing the merger of the two companies at the Plaza Hotel in downtown Seoul, Monday. / Yonhap

By Kim Yoo-chul

Would the Kakao-Daum merger threaten Naver’s dominance?

Even among Kakao and Daum officials, there appears to be less than firm conviction about the synergy.

Daum Communications CEO Choi Se-hoon expects Kakao to create powerful synergy.

"Daum has tried to reach out into the mobile territory without success. But the all-stock deal with Kakao will truly help us," said Choi.

Daum is a distant second to Naver as an Internet firm. Naver operates its own chat application ― Line ― in more than 120 countries.

Hana-Daetoo Securities analyst Hwang Seung-taek expects "some” synergy as the alliance allows Kakao to use Daum's infrastructure, while Daum may secure its next cash-generator using Kakao platform.

But officials at Daum and Kakao admit there are obstacles.

“The key issue is how to combine the two different tribes in the shortest time," said one Daum executive by telephone.

Mentioning previous struggles after Naver's acquisition of HanGame, the executive urged Kim Beom-soo, the biggest shareholder of Daum Kakao, to focus on finding measures for management stability.

Despite its strong presence in Korea, Kakao is not strong overseas beyond some countries in the region.

Kakao recently launched apps in Indonesia, Malaysia and the Philippines. However, company officials said it has no imminent plans to expand outside Asia yet, given the merits of having a concentrated market.

"It's unlikely that any synergy will be coming soon as services offered by Daum and Kakao are popular in Korea. For Kakao, it's hard to catch up with Naver’s Line, while Daum is also seeing difficulties in narrowing the market gap with Naver in Korea," said an official at Kakao.

Last year, Kakao took in just $203 million in revenue and $59 million in profits, the bulk of which it earned from selling stickers and game-linked purchases.

"When you talk global, well, it's been in doubt over the effects of the alliance," said an official in the local internet industry.

"Meanwhile, business fields that Daum Kakao aims to target are overlapped with those run by Naver, raising uncertainties. We will see whether or not the new unit will launch a 'wholly-new' mobile service," said a senior fund manager from a U.S.-based investment bank in Seoul.

Naver spokesman declined to comment on the Daum Kakao deal. But one Naver official said the company doesn't believe that the alliance will make any significant impact on Naver.

Kakao has about 145 million users in Asia, about a quarter of those using WhatsApp, said the company.

Kakao was established in 2006 by Kim Beom-soo. He owns a 29.9 percent stake in Kakao, while Kcubeholdings, owned by the founder, has another 23.7 percent stake.