Daum Surges by Limit After Agreeing to Be Bought by Kakao

May 27, 2014 3:30 am ET

(Updates with closing share price in second paragraph.)

May 27 (Bloomberg) -- Daum Communications Corp. surged by the daily limit in Seoul trading after it agreed to be bought by Kakao Corp., South Korea’s largest mobile messaging service.

Daum shares advanced 15 percent, its biggest gain on record, to close at 89,800 won to give the Web portal operator a market value of about $1.2 billion. South Korea’s Kosdaq index lost 0.2 percent.

Kakao shareholders will hold more than two-thirds of the combined company after a reverse takeover that values Kakao at 3.1 trillion won ($3 billion), based on the terms of a Daum regulatory filing yesterday. The company will be renamed Daum Kakao, and the new entity will be listed in October, it said.

“The companies will create synergy by converging their services, like Kakao’s mobile platform and Daum’s service and contents,” Hong Jong Gil, a Seoul-based analyst at Korea Investment & Securities, said in a report today. “Kakao Talk can connect to Daum’s searching engine on their platform and can lift their share in the online search market, while Daum can also use its advertisement tool to sell Kakao’s mobile advertisements.”

The deal follows Facebook Inc.’s acquisition of messaging application WhatsApp Inc. for as much as $19 billion and Rakuten Inc.’s $900 million takeover of Viber earlier this year. The transaction also makes Kakao board Chairman Kim Beom Su a billionaire after he co-founded Kakao, which had said it was aiming for an IPO next year, in 2006.

Kakao decided expanding on its own would take too long and leave the company lagging behind competitors, Chief Executive Officer Lee Sirgoo told reporters in Seoul yesterday.

Kakao has 140 million users of its KakaoTalk instant- messaging app, the company said today. KakaoTalk is on 93 percent of smartphones in South Korea, and the company is investing in Southeast Asia -- mainly Indonesia, the Philippines and Malaysia -- as it seeks growth, Lee said in an interview in April.