Kakao will merge with its subsidiary Kakao M (formerly known as Roen Entertainment), the operator of MelOn, Korea’s most popular digital music service provider. The merger reflects Kakao’s determination to nurture its mobile platform, KakaoTalk, and its content business.
Kakao announced on May 17 that the company would absorb Kakao M by a ratio of 1 to 0.8. In March 2016, Kakao acquired Kakao M for 1.85 trillion won (US$11.66 billion). At the time, some analysts said the price tag for the music service provider was too high. Yet Kakao’s acquision of Kakao M is now regarded as a successful M&A case as Kakao M has posted a steady earnings growth based on MelOn.
Kakao will seek to create synergies by linking its content services to MelOn. In addition to loading MelOn into its AI-based speaker Kakao Mini, KakaoTalk recently began a new function to share music with friends. MelOn also benefits from Kakao’s AI technology, which has improved MelOn’s music recommendation function.
In this regard, the merger is seen as a strategy to maximize Kakao’s influence as a platform by combining the 4.65 million MelOn users and music database with KakaoTalk.
Kakao has decided to expand its content business, such as music and video, through the merger with Kakao M. "We will nurture both our mobile platforms KakaoTalk and our content business," said Cho Soo-yong, co-president of Kakao.
"Our new content companies will actively operate in overseas markets,” said Yeo Min-soo, a co-president of Kakao, citing as an example Kakao Japan, which is rapidly growing in Japan through Piccoma, a webtoon and webnovel platform.
Kakao M will hold a general shareholders meeting in July to vote on the proposed merger with Kakao. The merger will take place on September 1.