Kakao Corp and Daum announced today that they will merge through an equity swap, creating a company with a 3.4 trillion won (about $2.9 billion) market capitalization. Kakao is the maker of KakaoTalk, South Korea’s top messaging service, while Daum is one of the country’s largest Internet portals. If the deal goes through, the combined company will be listed in October.
Kakao and Daum stand to become one of South Korea’s largest Internet companies and will be better positioned to compete against Naver, South Korea’s largest Internet portal and the maker of KakaoTalk competitor Line, which is aiming for one billion users by the end of 2015. Line had about 400 million users as of April, while about 145 million people use KakaoTalk.
News of Kakao and Daum’s merger follows the $19 billion acquisition of WhatsApp by Facebook and Japanese Internet giant Rakuten’s purchase of Viber for $900 million. According to a February report in the Wall Street Journal, Kakao had been planning to file for an IPO that could have been worth $2 billion in South Korea.
In a statement, Daum said, “The merger will solidify core business operations and create positive synergy.” For Daum, the deal represents a chance to expand its mobile offerings. Like its peers in other countries, including Yahoo and China’s Baidu, Daum has struggled to develop a cohesive mobile strategy as its users spend more time on smartphones and tablets.
Kakao, on the other hand, will now have more source of income besides its mobile game platform, which has enabled the company to become profitable. The company has recently tried to diversify, however, by launching products like a streaming music platform, a photo-sharing app, and a social network similar to Path.