As Kakao Corporation and its executives face trial over allegations of stock manipulation involving SM Entertainment, controversy arises within Kakao Pay, a subsidiary that has been pursuing the acquisition of management rights of Siebert Financial, a U.S.-based securities firm, since the beginning of the year for global business expansion. The acquisition of the U.S.-based securities firm by Kakao Pay has faced hurdles as Siebert cited legal risks as the reason for the challenging progress of the contract, ultimately leading to the failure of the merger and acquisition (M&A) deal.
According to the Financial Supervisory Service’s DART system on Dec. 20, Kakao Pay has announced that it would not proceed with a secondary transaction related to the acquisition of Siebert shares through mutual agreement between the two parties.
Originally, Kakao Pay had planned to acquire a 51 percent stake in Siebert’s management rights through two separate transactions. Accordingly, it invested 1.91 trillion won (US$1.46 billion) to acquire 8,075,607 shares, or 19.90 percent, in May. The remaining shares were intended to be purchased by the end of the year.
However, complications have arisen in the acquisition of management rights as authorities and prosecutors investigate Kakao, the parent company, over allegations of stock manipulation involving SM Entertainment. In October, prosecutor’s office indicted Bae Jae-hyun, head of Kakao’s investment division, and Kakao on charges of violating capital market laws.
Subsequently, last month, a total of six individuals, including Kim Beom-soo, the founder and former chairman of Kakao; Hong Eun-taek, the current CEO of Kakao; and Lee Jin-soo and Kim Sung-su, CEOs of Kakao Entertainment; along with two lawyers from a law firm, were referred to the prosecution without being arrested based on a prosecutor’s recommendation.
As a result, the subsidiary’s M&A plans have failed. According to information reported to the U.S. Securities and Exchange Commission (SEC), Siebert sent a letter to Kakao Pay in November, stating “There are significant negative developments making it difficult to conclude the second transaction.” The term “significant negative developments” was further explained as “South Korean financial authorities taking actions against the parent company, Kakao, and Kakao Pay.”
With the collapse of the second transaction, Siebert has agreed to pay Kakao Pay a settlement amount of US$5 million. Siebert plans to disburse the agreed-upon amount over a total of 10 quarters, starting from March of next year and continuing until June 2026.
However, Kakao Pay has decided to continue being a member of Siebert’s board of directors. A representative from Kakao Pay said, “We will continue to explore ongoing collaboration opportunities as a board member and strive to achieve the business growth of both companies.”