Kakao Close to Signing Morgan Stanley, Samsung Securities as Advisers for IPO

February 26, 2014 Leave a comment

Kakao Close to Signing Morgan Stanley, Samsung Securities as Advisers for IPO

IPO Could Value Company at More Than $2 Billion

MIN-JEONG LEE, JONATHAN CHENG and P.R. VENKAT

Feb. 19, 2014 6:34 a.m. ET

Kakao Corp. is close to signing Morgan Stanley and Samsung Securities Co. as advisers for an initial public offering that could value South Korea’s dominant text messaging firm at more than $2 billion, according to people familiar with the matter.

One person said Kakao could raise as much as $1 billion, which would be the country’s largest IPO since May 2010, when Samsung Life Insurance raised 4.9 trillion Korean won ($4.6 billion).

The seven-year-old company is betting on strong interest in the hot mobile messaging market, where bankers see a lot of potential for deals.

Last week, Japanese e-commerce company Rakuten Inc. agreed to buy Cyprus-based Viber Media Inc. for $900 million. Facebook Inc. last year offered to buy Snapchat, a fast-growing messaging service from Silicon Valley, for about $3 billion. Snapchat declined the offer.

Kakao, whose outside investors include Chinese Internet giant Tencent Holdings Ltd. and an affiliate of Malaysian conglomerate Berjaya Corp. Bhd, recently set a target of going public by May next year.

Kakao will list on one of Korea’s stock exchanges, with the possibility of a separate listing on a stock exchange in another country, according to the people.

The listing plans come amid heightened competition in Asia, home to some of the fastest-growing mobile messaging services in the world. Japan’s Line, another popular messaging app, has more than 350 million registered users world-wide, according to its operator Line Corp., a Tokyo-based unit of South Korean Internet firm Naver Corp.

In October, Line said that it was considering several fundraising options including an IPO. The company said this week that it still hasn’t made any concrete IPO plans.

Kakao, based in Pangyo, South Korea, is planning its initial public offering to fuel expansion in southeast Asia, and to fund its push into new business lines in its native South Korea, where it has a stranglehold on the personal messaging industry.

The company said that it currently has 133 million registered users. Kakao has so far struggled to grow beyond Korea’s home market, which has a population of about 50 million people, thanks to deeply entrenched competitors in neighboring China and Japan.

So it has made a play for Southeast Asian markets that are still up for grabs, including Malaysia, the Philippines and Indonesia. There, it is fighting for market share against Line and Tencent’s WeChat service.

Back home, Kakao’s foray into mobile gaming, which began two years ago, helped the company turn its first annual profit, in 2012. In the process, Kakao has also become the country’s primary platform for mobile game developers.

Kakao shares gaming revenue with third-party developers, including SundayToz Corp., the developer of color-matching game Anipang for Kakao, which listed its shares late last year on the Korea Exchange’s tech-focused Kosdaq Market.

The popularity of Anipang for Kakao, which users play through Kakao’s messaging platform, helped Kakao notch up about $6.5 million in profits, on $42 million of sales, in 2012, through in-service purchases of virtual goods. The privately held company hasn’t released any financial data for 2013.

Kakao’s other attempts to expand its business beyond messaging, including an Instagram-like photo-sharing service and an attempt to sell news and media to mobile users, haven’t yet become major revenue sources.

The investment by MOL Global Pte, which is majority owned by Malaysian conglomerate Berjaya came earlier this year through private purchases of Kakao employees’ shares, and valued the Korean messaging company at about $2.5 billion.

A spokeswoman for MOL Global, which owns social-networking pioneer Friendster Inc., declined to comment on the equity investment, but noted that Kakao had joined with with Friendster, which since 2011 has operated as a social gaming site.

By comparison, Viber Media, which isn’t yet making money, sold for $900 million in its deal earlier this month with Rakuten.

 

Filed under Macro Trends, TMT Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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