Kakao Intends To Sell Kakao Entertainment

TLDR: Kakao Ent has failed to go public and Kakao is going to sell management rights.

Kakao intends to sell Kakao Entertainment. This decision was made due to the stagnating IP conditions, making it difficult to receive proper corporate valuation to go public. Kakao Ent's current valuation is said to be around 11tr.

According to the Investment Banking industry, Kakao Ent sent a letter to major shareholders of Kakao Ent including Anchor Equity Partners, Saudi Arabia's Sovereign Wealth Fund, Singapore's GIC Private Limited, and others announcing its intention to sell.

Kakao Ent has been preparing for an IPO since 2019 but listing was canceled due to various controversies including other split listings. (Note: Kakao Pay and Kakao Bank both were spun off and listed publicly but it created a lot of controversy because major shareholders and executives cashed out after the IPO and enjoyed massive profits but it diluted the Kakao share value:

Back to article: It is believed Kakao is opting to sell management rights instead of an IPO because current market conditions would not lead to a proper valuation. The company once considered listing on NASDAQ but judged it would not be easy. (Note: the original plan was to list on NASDAQ for 20tr. A large part of Kakao Ent was the webtoon business but that segment has performed poorly and they liquidated Tapas Media and Radish Fiction in the US. Also related is how poorly Naver Webtoon stock is doing. Naver Webtoon went public on June 26, 2024, closing at $23 per share on its IPO day. It is now trading at $7.46)

https://publishingperspectives.com/2024/06/south-korea-owned-webtoon-entertainment-launches-its-ipo/ 

Kakao Ent total value is believed to be around 11Tr. This was the value set in early 2023 when it received 1.2tr from PIFs and GICs. Buying candidates include game companies such as NCSoft and Kraft and large entertainment companies such as Hybe, and PEFs.

Kakao Ent operates three main business:

• Music (entertainment agency),

• Story (webtoons and web novels), and

• Media (production company).

Melon, Kakao Webtoon, and Kakao Page are its representative businesses. Last year, Kakao Ent generated sales of 1.8tr. This was a 3.2% decrease.

Its operating profit was 80.6B, an increase of 16.5% from 2023. Kakao Ent grew through a series of mergers & acquisitions. In 2022, it invested 1Tr to acquire Radish and Tapas. It also acquired Antenna, the agency founded by Yoo Hee-yeol and Yoo Jae-suk.

The number of Kakao Ent subsidiaries grew from 14 in 2020 to 42 as of last year. In 2023, Kakao Ent, alongside Kakao, gained management control over SM Ent and its valuation at one point was estimated to be 20Tr.

Kakao Ent's majority shareholders include:

• Kakao: 66.03%

• Hong Kong-based PEF Anchor PE: 12%

• A special purpose corporation (SPC) created by Anchor PE and Singapore GIC: 6.73%

• Saudi Arabia PIF: 5.1%

• Tencent: 4.5%

There is a view that the sale will be challenging due to conflicting interests as Kakao Ent shares are held by various strategic investors and financial investors. Anchor PE, an early investor who invested 10 years ago, is desperate for a quick exit.

PIFs and GICs that recently invested in hopes of an IPO are unlikely to participate in a sale that fails to deliver expected returns. This was originally broke by Bell Korea but KED had a more concise article https://n.news.naver.com/mnews/article/015/0005116668?sid=101 

Bell Korea noted that Anchor has been looking to unload its shares for a while and that the key will be to find a structure that coordinates the sentiments of the investors who need an immediate exit and those who want to preserve their investment.

https://www.koreaherald.com/article/2763561 

https://m.thebell.co.kr/m/newsview.asp?svccode=00&newskey=202504080831514080103250