This article was published on April 9, 2025, at 3:57 p.m. on the ChosunBiz MoneyMove site.
Kakao's subsidiary Kakao Entertainment is up for sale. Kakao Entertainment had planned to return funds to investors through an initial public offering (IPO), but it appears that the company has shifted its focus to selling management rights, judging that it would be difficult to list at a high corporate value.
From Kakao's perspective, a corporate value of over 11 trillion won is unavoidable. The 11 trillion won valuation was established two years ago when it secured investments. However, this is at odds with market expectations. The market suggests that if Kakao Entertainment's corporate value is below 5 trillion won, companies like KRAFTON could express interest.
◇ Two years ago, the valuation was 11 trillion... Discrepancy with market expectations is large
According to investment banking (IB) industry sources on the 9th, Kakao recently sent letters to major shareholders of Kakao Entertainment, including Anchor Equity Partners, the Saudi Arabia Public Investment Fund (PIF), and the Singapore Investment Corporation (GIC), indicating its intention to sell management rights.
As of the end of last year, Kakao Entertainment's largest shareholder is Kakao, which holds a 66.03% stake. Anchor and GIC combined hold 17.52%, while PIF possesses 5.1% and China's Tencent has 4.61%. The remaining 6.69% is held by other shareholders, with 0.05% being treasury shares.
The mentioned sale price of 11 trillion won was set based on a valuation established when receiving 1.2 trillion won from PIF and GIC in 2023. There is a perspective that to avoid recognizing losses, at least this amount must be acknowledged and sold, which is why 11 trillion won is viewed as the lower limit.
However, 11 trillion won is at odds with market expectations. An industry insider in the entertainment sector noted, “Kakao Entertainment has good cash flow and could attract companies interested in intellectual property (IP) that have financial strength, but demand seems likely when the corporate value is less than 5 trillion won.”
They added, “In KRAFTON's case, they earned over 1 trillion won in operating profit last year, and their current assets exceed 5 trillion won, but there is some concern about their high dependency on a single IP.”
Kakao Entertainment recorded a consolidated revenue of 1.8 trillion won and an operating profit of 80.5 billion won last year. The net loss was 259 billion won.
The corporate value of Kakao Entertainment as viewed by the securities market varies widely. Some brokerages are estimating the value of Kakao’s equity based on the 11 trillion won valuation recognized during the 2023 investment round, while Kiwoom Securities views the corporate value at approximately 6.2 trillion won. Korea Investment & Securities sees the corporate value as lower, at around 3 trillion to 4 trillion won.
Kakao Entertainment has experienced particularly many ups and downs among Kakao's subsidiaries. Until 2021, former CEO Lee Jin-soo, in an interview with Bloomberg, declared an expectation of a corporate value of 20 trillion won, marking it as the top expected candidate in the group. However, controversy arose over the high-priced acquisition of drama production company Baram Pictures, leading to the prosecution of the CEO and executives. Additionally, there are ongoing court cases regarding suspicions that Kakao Entertainment was involved in stock manipulation during the acquisition of SM Entertainment.
While the company is struggling with judicial risks, listing seems far off. Kakao Entertainment had selected NH Investment & Securities and KB Securities as its listing underwriters back in 2019, but as risks have prolonged, even the underwriters have shown uncertainty about when the listing will occur. There have also been comments that the listing of the affiliated company Starship Entertainment (the agency of IVE) may realistically happen sooner than that of Kakao Entertainment.
◇ “Kakao is not in a hurry to sell its subsidiaries”
However, there are opinions that Kakao is unlikely to push for an IPO at a ridiculously low price. An industry insider familiar with Kakao's internal affairs reported, “There is a prevailing sentiment that since the Yoon Suk-yeol administration has ended, there is no rush to tidy up subsidiaries.”
In the previous administration, there was a need to sell subsidiaries to show strong reform intentions, but now there seems to be a stronger atmosphere of taking a wait-and-see approach.
Another investment banking industry insider stated, “I understand that this time Kakao's expression of intention to sell Kakao Entertainment is closer to ‘we will head in the direction of selling’ rather than ‘we will begin the sale immediately.’”