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 Kakao's KakaoTalk is the undisputed chat leader in South Korea, but
its global user base is far smaller than the likes of Facebook Inc's
WhatsApp or Naver Corp's Line.
The merger with Daum, South Korea's No. 2 internet search company,
will give Kakao new lines of revenue and boost its resources for
overseas expansion.
The deal, announced in May and set to be completed in October, is
also effectively a back-door listing that allows Kakao to avoid a
time-consuming initial public offering.
According to regulatory filings, Daum will issue 43 million new
shares to Kakao shareholders based on a valuation of 72,910 won per
share, valuing the messaging app operator at 3.1 trillion won ($3.06
billion).
But Daum failed to muster the necessary two-thirds vote from its
shareholders for a set of changes to its articles of incorporation,
some of which could have given the merged company greater
fund-raising flexibility in the future.
Some of the changes called for giving the enlarged entity the right
to double the maximum number of shares it can issue to 200 million
and to sell convertible preferred shares with voting rights. Both
could have a dilutive effect on shareholder value.
Daum spokeswoman Jody Chung said the vote rejecting the changes to
its articles of incorporation has no impact on the merger or the
company's medium- to long-term strategy.
Daum's shares ended down 5.9 percent on Wednesday, their biggest
daily percentage drop since February 2013.
"It appears that some investors may have read too much into the
rejection and speculated that there might be something going on, but
there was nothing to suggest that the merger is going to fall
apart," said Park Jung-hoon, a fund manager at HDC Asset Management,
adding that some investors may have opted to take profit on the
stock as well.
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While Daum did not disclose the vote count or which investors
opposed the changes, a spokeswoman for South Korea's National
Pension Service, the world's fourth-largest pension fund, said it
voted against some of the changes to protect its interests.
The fund, which held a 6.9 percent Daum stake as of this month, is
known to occasionally flex its muscle on ballot proposals, voting no
on 216 of 2,441 votes, or nearly 9 percent of the time, in the first
quarter of 2014.
The combined entity will be called Daum Kakao, but that needs to be
approved by shareholders at a post-merger shareholder meeting.
(Reporting by Se Young Lee; Editing by Michael Perry, Kenneth
Maxwell and Ryan Woo)
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