KaKao

Behind-the-scenes stories of Kakao-Daum Communications Merger

 

In the early morning of May 26, 2014, IT journalists' smartphones were beeping all at once. 

 

"[Web Message] [Urgent] Kakao Corporation and Daum Communications will make an important announcement in the Grand Ballroom at Hotel Plaza, Sogong-ro, Jung-gu, Seoul. We sincerely ask for your kind understanding of providing no information in advance. Reporters who wish to cover the story must be seated before the start time."

 

It was completely different from regular corporate press conferences, where schedules or topics were announced at least one or two weeks so that relevant content could be reported inside the media. Press rooms at every corner of Seoul were astir with the message above.  

 

Will the last April Fool's jokes― 'Kakao and Daum Communications are merged'―become a reality?

         

The marriage of the new mobile venture and the first-generation portal giant was a big event discussed until now. The enormous shock waves rolled in after the merger news. 219 reporters from 143 press media came to the site to report the story and poured out over 680 news articles on the same day and the next day. Not much else is known about that merger process since the press conference was held under 'maximum security' settings. So, six full years after the completion of their physical merger, we are to fast forward and look back upon that time.

 

# How will it grow?

In 2012 and 2013, Kakao proved that its growth potential became a reality. Users were wildly enthusiastic about a series of Kakao's hit works after KakaoTalk, the 'national messenger,' such as Gifts, Plus Friends, Emoticons, KakaoStory, Games, and Kakao Friends.

 

This noteworthy startup star grew in a breath as the key player in the mobile era and the 'big man' of the Korean IT industry. Around mid-2013, Kakao started to seriously ponder on 'how to keep growing?'

Just a while ago, it took pains to survive on the one hand and became the darling of the Korean mobile service industry in a flash on the other hand. That's why Kakao got far more sense of crisis than that of expectancy while agonizing over future plans.

 

'When and how strong competitors emerge during the paradigm shift.' 'How we could throw a new topic while continuing to operate multiple services that have gathered tens of millions of users in a short time.' All these thoughts tailed back.

 

# 'Idea' of Hannam-dong, and tapping

At this time, Kakao and Daum Communications almost came close to collaborating, as William (Se-Hun Choi, previously CEO of Daum Communications/ previously Co-CEO of Kakao Corporation) encouraged Vino (previously Co-CEO of Kakao CorpoCorpn/ currently CEO of Upbeat) to implement Daum's search engine into KakaoTalk. However, that idea was not materialized afterward. Kakao already lacked in resources required to manage the newly launched services that made a hit in a row and develop global business opportunities. William and Jae-Woong Lee (a founder of Daum Communications) occasionally had tea-time in the Hannam-dong office (previously Daum's Seoul office). In early 2014, the two had conversations about the previous year's business performances.

 

“Lee said, 'What if we could seek something afresh together with Kakao?' What an unexpected idea. It sounded like trying to make it happen, that the two would merge beyond the level of collaboration. Although assuming no management authority, Lee was the founder and the biggest shareholder and brought up such an idea in the first place. That's why I was surprised. Also, I thought that 'Could Kakao push the idea forward?' since the startup star was literally too busy to work on collaboration" That's William's account.

 

William, after weeks of agony, headed for Kakao's Pangyo office. He and Brian (Chairman of Kakao) sat face-to-face over the cups of tea. William broke the silence, "What if our two companies would merge?" Brian was startled by his words. The two leaders exchanged thoughts about respective pros and cons and challenges ahead, and Brian "asked for some more time to deliberate on the suggestion."

 

#Spark

There had been a long pause since then. 'Did I make hasty suggestions somehow?' By the time when Willian got confused, Brian called him up for a "reunion."

 

On one sunny day in early April, the two leaders met at a hotel lobby cafe in Yeoksam-dong, Seoul. Brian began to talk. “I thought over and over again and realized every word you had told me was true.” Finally, sparks to push forward the merger flared between Daum Communications, the first generation of Internet service providers and the beginning of the history of portal sites in Korea, and Kakao Corporation, the most prominent mobile venture.

 

In mid-Apriil, a week after the reunion, key persons from the two sides met in a 30-minute meeting to decide on pursuing the merger process. Shortly after that, a Task Force team was organized. The two companies respectively appointed around five staff members from IR, Strategies, and Legal Departments to the TF team. Generally from this stage, companies sought strategic support from investment banks, law firms, and consultancies, but it was not the case with Kakao and Daum Communications. Leaders experienced with corporate M&As took care of the little as well as the big things within the TF team. The two companies managed an independant office for the TF team in Daechi-dong, Seoul, a district located about halfway between Kakao and Daum Communications. Naturally, the two were in perfect condition to keep 'maximum security.'

 

#Opinion gap

'Established in 1995.' 'Led the popularization of email.' 'Portal, map, and webtoon.' These are only a few among the contents that Daum Communications had but Kakao didn't. Daum Communications was also equipped with plenty of skilled developers but in trouble shifting its paradigm toward the mobile era. Daum Communications had so many of what Kakao didn't have. In the meantime, the company needed most or 'had every reason to crave for' Kakao's mobile social graphs.

 

'Valuation' was the most pushed and pulled by both sides from the beginning to mid of negotiations. That task was to analyze the current corporate value and estimate the fair price of a share. At the moment, Daum Communications was a listed company, so it was possible to evaluate corporate value by the stock price. However, there existed a wide range of valuation methods to measure corporate value for an unlisted company like Kakao.

 

Naturally, there was considerable disagreement between the criteria for the deal initially proposed by Kakao and the valuation results estimated by Daum Communications. After fierce discussions between themselves and reviews of an adequate merger Corp by an accounting firm over the two months, the TF members finally reached an agreement.

 

By the way, the two had to go through the most painful situations near the merger announcement. Kakao and Daum Communications initially planned to bring all into the open on Friday, May 23, 2014. However, the differences between the parties had not narrowed much in several points, such as setting a protection period for part of Daum Communications shares. The TF members recalled that moment, "It was too difficult to put a period on the agreement to the extent that we even mentioned 'No Deal.'"

 

The board of directors' meeting continued into the evening beyond the deadline for public disclosure on the 23rd. The two companies canceled the reservation of a hotel convention hall, which had been contracted under a law firm's name to conceal the merger announcement press conference.

 

In this process, one economic newspaper reported the anticipated Kakao-Daum Communications merger in a scoop on Saturday, May 24. Then, communication managers at the two companies got swamped with phone calls from reporters who wanted the confirmation of the merger decision, vaguely expressed in the news article, as well as equity swap Corp. However, Kakao and Daum Communications could not respond to any of the coverage requests during the weekend until the scheduled announcement on Monday (May 26) morning.

 

# Wrap-up

Daum Communications, a listed company, completed paperwork for reporting before dawn to comply with the disclosure regulations. At 7: 20 AM, the announcement of the merger decision was finally posted. Reporters' calls to check specific facts poured in again.

 

'The two closed the merger deal.' 'The merger is likely to go pieces.' 'The merger process resumed.' After several days of conflicting stories, the external communication managers on both sides became busy again.

 

As it was a huge event, they needed a spacious place. Fortunately, Kakao and Daum could reserve a vast banquet hall in a hotel located in central Seoul. The two urgently revised the date and time already printed on the event protocols and various printouts prepared for the announcement on the 23rd and texted emergency notifications to hundreds of journalists.

 

At 2 PM on May 26, 2014, Vino from Kakao Corporation and William from Daum Communications mounted the platform in the Grand Ballroom of Hotel Plaza Seoul, where was packed with reporters and officials from both companies.

 

"The tie-up will solidify core business operations ― Kakao's powerful mobile platform and Daum Communications’ quality content and service-business knowhows, which will create the highest synergy. This is a pure merger with no stock acquisition between the parties, which is unprecedented in the Korean corporate history." _ William

 

"The joint corporation will grow into a communication-information-life platform provider that encompasses all areas of mobile and IT. In the near future, the mobile communication revolution proven by the mobile messenger platform will expand into the information-life revolution. Daum Kakao will make a road to where no man has gone before. We will write a new history of IT mobile."_ Vino

 

#Another start

Daum Communication's share was traded at a little over 70,000 Won in the open market. Privately-held Kakao was valued at a little over 110,000 Won per share. The market capitalization of Daum Communications was around 1 trillion Won, and Kakao was about 3.1 trillion Won (based on the stock report). The joint corporation of 4 trillion Won at the time of the merger continued to grow and became the top 10 KOSPI company with a market capitalization of KRW 32 trillion (as of November 30, 2020).

 

“Due to merger negotiations, preparations for physical merger afterward, and the hours of efforts for chemical integration, it was hard enough for me to feel burnt out for the past two years. However, if I encountered that moment again, I would set the wheels moving again. Even before pursuing the merger with Kakao, we actually had received serious bids from one or two companies every year but turned all down. We judged that they were not a deal that would benefit all shareholders. We were able to proceed with the merger with Kakao, which was powerful enough to create a huge synergy effect, and I think we have realized much of what we envisioned at the time.” _ William

 

"We are trying to connect people to people and people to the world across time and space. The connection enables information to flow, business to grow, and hearts and minds to connect. I'm convinced that innovative connections will make the world more open and linked afresh. In this way, we will try to take root and bloom our service into the land of daily life. We will probably be on the road to where no man has gone before. We're like a ship sailing without a map. The only thing you can trust and count on is colleagues around you. Some find the way to move forward by reading the stars or observing the horizon, while others run the engine around the clock. And some others will have to cook. All of them are one. Why don't you tread an untrodden path with us? It will be full of hilarious adventures."_ Brian (Excerpt from the article posted Agit, the in-house business platform on October 1, 2014, after the official launch of the merged corporation)

 

 

 

Alpha (α) in the Korean Internet history starting in the 1990s and omega (Ω) symbolizing the 2010s are taking a big step forward under one name, 'Kakao.'