The cross-investment agreement Oct. 28 between South Korea’s No. 1 telecommunication firm SK Telecom and internet giant Kakao to exchange common shares valued at a total of 600 billion won ($513.4 million) is expected to lead to their mutual growth. with a positive response from analysts.
Their “strategic partnership” is likely to lead to wider content distribution, e-commerce and “futuristic business” related to 5G network.
NH Investment & Securities analyst Ahn Jae-min wrote in a note that the partnership would lay the groundwork for business synergies, considering their number of users -- SKT’s 31.2 million subscribers and Kakao’s 44.2 million monthly active users.
“In the wake of 5G network era, SKT has been seeking new opportunities beyond the traditional telecom business, while Kakao has been looking to take advantage of the user base of its KakaoTalk app,” said Ahn in the memo. “It is positive that the two companies chose to go in the same direction, instead of engaging in competition.”
Kim Joon-sop of KB Securities pinned hopes on the potential collaboration by the two firms and subsidiaries, as well as joint efforts to venture into new business realms related to artificial intelligence, mobility and internet of things.
For example, digital media contents produced by Kakao’s entertainment arm Kakao M may be distributed on SKT’s over-the-top service Wavve, born as a result of a merger between Oksusu and terrestrial broadcasters’ joint OTT platform Pooq.
Moreover, online purchase experience on the two companies’ platforms -- SKT’s e-commerce arm 11st, Kakao Friends and Kakao Makers -- are expected to improve with the two parties’ concerted efforts to hone AI-powered recommendation algorithm.
“SKT will be able to enhance its portfolio for new business in the early stage, such as 11st and Wavve,” Kim wrote. “Kakao, with SKT will be riding on a larger distribution channel for business related to e-commerce and contents.”
Earlier in the day, Kakao announced plans to buy SKT’s 1.3 million treasury stocks worth 300 billion won for cash in a regulatory filing, while the telecom firm will acquire 2.2 million stocks newly issued by the internet giant, which are valued correspondingly.
The deal will serve as a token for “a stronger and a more comprehensive partnership” between the two parties, Kakao’s Executive Vice President Bae Jae-hyun said. SKT’s Executive Vice President Yoo Young-sang said the tie-up will “take the ICT ecosystem to the next level.”
The transactions are poised to take place on Nov. 5 and will be accompanied by a one-year lockup agreement. Following the deal, Kakao will own a 1.57 percent stake in SKT, which will will control 2.53 percent of Kakao.
Kakao shares remained flat compared to the previous session's closing price, while SK Telecom stocks were up 0.6 percent.
By Son Ji-hyoung (email@example.com)