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| Kakao's office in Seongnam, Gyeonggi Province / Yonhap |
Tech giant's share price falls to one third from peak
By Lee Yeon-woo
Shareholders of Kakao are expressing frustration after the internet company launched a tender offer earlier this week aiming to purchase a 35 percent stake in SM Entertainment. Investors are questioning whether taking over SM's management rights will help boost Kakao's plunging stock price.
According to the Korea Exchange, shares of Kakao closed at 59,000 won, Thursday, down 0.17 percent from the previous day. After hitting 71,300 won on Feb. 9, the stock price of the tech giant began a continuous plunge since HYBE announced its deal to take over SM founder Lee Soo-man's stake. Kakao's stock price fell by 16.64 percent in value in only a month.
The plunge is frustrating shareholders who were expecting an upward trend seen from the beginning of the year to continue. Kakao's stock price rose to 170,000 won in 2021, but fell sharply to 46,500 won last October before recovering early this year.
In contrast, SM shareholders have enjoyed a rally amid heated market expectations as Kakao announced the plans for its tender offer. SM's share price rose for six consecutive sessions since Feb. 28. But the upward movement stopped, Thursday, with the stock closing at 154,900 won, down 2.27 percent from the previous session.
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Kakao is expected to suffer more since its ambitious tender offer is likely to fail, with SM's stock price on Wednesday soaring above 150,000 won per share ― the price that Kakao suggested for its tender offer.
Since the stock price is showing no signs of a rebound, Kakao shareholders are expressing frustration and criticizing management for investing too much money to take over an entertainment company.
"I'm not sure whether SM's stocks are worth 150,000 won. If Kakao has money to purchase them at this price, it should rather have purchased its own shares to boost the stock price," one investor wrote to an online forum of stock investors.
"Naver is betting on artificial intelligence," another wrote. "I don't understand why Kakao, an IT group, is holding onto an entertainment business."
"As for Kakao shareholders, they cannot help but take a negative stance as it isn't clear whether this deal is for Kakao or Kakao Entertainment," said Choi Nam-kon, an analyst at Yuanta Securities.
Market analysts explain that Kakao's participation in this tug-of-war proves the company's strong will to expand its international entertainment business. Kakao Entertainment, a subsidiary of Kakao, has strength in story-focused content, such as webtoons, but lacks competitive power in K-pop.
"Kakao Entertainment and Kakao Piccoma (a global webtoon service) are expected to reap operating profits worth 250 billion won this year. If they succeed in taking over SM, they will become the nation's only global-scale entertainment company, earning an annual profit worth 500 billion won," said Kim Hyun-yong, an analyst at Hyundai Motor Securities.
"Kakao's strong desire to take over SM is evident in its suggested tender offer of 150,000 won. This suggests that SM is 'indispensable' for Kakao Entertainment to go public, whereas the acquisition would only 'benefit' HYBE," said Park Sung-kuk, an analyst at Kyobo Securities.
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