Daum Communications Corp.’s share price up, merges with Kakao Corp. to consolidate its positions on the mobile market

The biggest mobile messaging service in South Korea – Kakao Corp. reached an agreement with Daum Communications Corp. According to the terms of a regulatory filing of Daum, the two companies will merge after a reverse takeover that estimates Kakao to 3.1 trillion won (3 billion dollars). The new company will be named Daum Kakao and is expected to be listed on the Korea Exchange in October 2014.

Daum said in a regulatory filing, which was cited by the Financial Times: “We can secure growth of our internet business by taking advantage of Kakao’s mobile traffic while Kakao can also strengthen its mobile service with Daum’s specialised workforce, technology, content and platform.”

The new company that is to be formed after the merger between Kakao Corp. and Daum Communications Corp. is considered beneficial for both parties, because they are seeking to consolidate positions in web and mobile services.

The deal follows a series of acquisitions in online messaging services, which proved to be a flourishing business segment. Earlier this year, Facebook Inc. reached an agreement over the purchase of the messaging service WhatsApp in a cash-and-stock deal estimated to 19 billion dollars. Later, Rakuten Inc. shared that it was considering to purchase Viber at the price of 900 million dollars.

Currently, Daum is the second-biggest internet portal on the territory of South Korea. The takeover is seeking to increase the competitiveness of both companies in the highly-competitive mobile and internet business environment.

The Chief Investment Officer of Shinyoung Asset Management – Huh Nam Kwon commented the news in an interview, which was cited by Bloomberg: “Kakao’s move to possibly list itself through the merger with Daum cuts down time and costs. It ultimately produces synergy for them, as the leading players in the online and offline industries join forces.”

The news about the merger was surprising, due to the fact Kakao Corp. has been preparing for an initial public offering in 2015. The companys net profit for the fiscal 2013 (reported in April) was 61.4 billion won, which was more than ten times larger, than the previous years results.

Daum Communications Corp. was 6.69% up to close at 78,100 South Korean won per share on Friday, marking a one-year change of -8.01%. According to the information published on the Financial Times, the 24 analysts offering 12-month price targets for Daum Communications Corp. have a median target of 83,000, with a high estimate of 107,000 and a low estimate of 66,000. The median estimate represents a 15.60% increase from the last price of 71,800.