[비즈한국] The entertainment industry is buzzing following rumors of a sale of Kakao035720 Entertainment. Kakao has not denied the sale rumors. On the 9th, Kakao stated in a public disclosure, "We are reviewing various options to enhance the corporate value of the Kakao Group and ensure the sustainable growth of Kakao Entertainment," adding that "nothing has been finalized at this time."
In 2023, Kakao Entertainment attracted an investment of 1.15 trillion won (a 5.10% stake each) from the Saudi Public Investment Fund (PIF) and the Government of Singapore Investment Corporation (GIC). Based on this, the PIF and GIC valued the company at 10.5 trillion won. Since then, Kakao Entertainment has been pursuing an IPO. While Kakao Entertainment would need to achieve a market capitalization exceeding 10.5 trillion won post-listing, the recent stock market climate is unfavorable. Some analysts suggest that the company is opting for a sale because it cannot guarantee the success of an IPO.
The presence of SM Entertainment041510, which Kakao recently acquired, is also believed to be a factor. The entertainment industry expects Kakao to focus its resources on SM rather than Kakao Entertainment. Looking at the lineup of artists under SM, it is considered more competitive in terms of global market expansion than Kakao Entertainment.
Initially, the stock market expected synergy between Kakao Entertainment and SM. However, Kakao Entertainment has recently failed to achieve significant earnings growth. Revenue decreased by 3.24% from 1.8735 trillion won in 2023 to 1.8128 trillion won in 2024. However, during the same period, operating profit increased by 16.35% from 69.2 billion won to 80.6 billion won.
The key issue is the sale price. As Kakao Entertainment was previously valued at over 10 trillion won, some expect the current valuation to be around 11 trillion won. Kakao holds a 66.03% stake in Kakao Entertainment. If the company is valued at 11 trillion won, the value of Kakao's stake is 7.2633 trillion won. Considering a management premium, the actual sale price is expected to exceed 8 trillion won.
However, Kakao Entertainment’s earnings growth is currently stagnant, and its financial structure is deteriorating. The debt-to-equity ratio increased by 33.64 percentage points (p), from 131.67% at the end of 2023 to 165.31% at the end of 2024. For this reason, some in the securities industry estimate the value of Kakao Entertainment at under 5 trillion won.
If Kakao Entertainment is sold at an excessively low price, shareholders could protest. The Saudi PIF and Singapore’s GIC each hold a 5.10% stake in the company. If Kakao Entertainment is sold at a low price, the value of their stakes would decrease accordingly.
Kakao Entertainment's business sectors are largely divided into Media, Music, and Story. The Media division manages artist agencies and produces/distributes dramas and films. The Music division handles music production and distribution, while the Story division oversees content businesses such as webtoons and web novels. Kakao Entertainment's strengths lie in its managed artists and the intellectual property (IP) of its webtoons and web novels. For this reason, some have suggested that a gaming company might pursue the acquisition, as they could generate synergy by utilizing gaming elements with Kakao Entertainment's IP.
Potential candidates for the acquisition include Krafton259960 and HYBE352820. However, considering the scale of these companies, spending trillions of won is not easy. As of the end of last year, the cash and cash equivalents held by Krafton and HYBE were 518.7 billion won and 412 billion won, respectively. In particular, HYBE has seen its profitability deteriorate recently, with operating profit falling by 37.75% from 295.6 billion won in 2023 to 184 billion won in 2024.
Another candidate mentioned is the Saudi PIF. Since the PIF invested in Kakao Entertainment after keeping a close watch on the company, speculation suggests they might be interested in a management buyout. Rumors are also circulating that Kakao has proposed the acquisition of Kakao Entertainment to the Saudi PIF.
Some analysts suggest that Kakao will not rush the sale of Kakao Entertainment due to the current political climate. Over the past few years, Kakao has faced public criticism due to issues like the redundant listing of subsidiaries. Under the Yoon Suk-yeol administration, it was also investigated for alleged stock manipulation involving SM Entertainment. Kakao’s recent move to sell some subsidiaries is interpreted as a desire to demonstrate a commitment to reform. However, with President Yoon Suk-yeol removed from office, a new administration is scheduled to launch this coming June. There is speculation that Kakao may adjust the pace of its reform efforts following the change in government.
A Kakao official only stated regarding the sale of Kakao Entertainment that "nothing can be confirmed."