Naver, CJ Group move to strengthen alliance through stock swap

Logo of CJ Group and Naver. [CJ GROUP, NAVER]

IT company Naver and CJ Group will form a strategic alliance through a stock swap in a bid to expand the two companies' business presence in the e-commerce and entertainment industries.

According to industry sources with knowledge on the issue Wednesday, Naver will likely push for a stock-for-stock exchange with some of CJ’s subsidiaries — CJ Logistics, CJ ENM and Studio Dragon, a content production studio. Industry watchers say Naver is likely to take a 10 to 20 percent stake in CJ Logistics, making the portal site the second-largest shareholder of CJ group's logistics subsidiary.

Stock exchanges between companies are usually completed through merger and acquisition deals. They are considered an aggressive form of business alliance since having ownership of a company’s stocks comes with the right to make managerial decisions. In 2019, messenger app Kakao and telecommunication operator SKT swapped 300 billion won ($261 million) worth of stocks to strengthen their partnership.

Naver and CJ are compatible partners, experts say, and by merging each other’s most competent businesses — Naver’s shopping platform and Webtoon contents with CJ’s distribution network and CJ ENM’s content power — the two can create business synergy.

Analysts predict the strategic partnership will likely start in the logistics division with Naver, using the mass distribution network and infrastructure of Korea’s No.1 logistics company to expand the delivery of products sold by vendors on its platform.

It will offer a solution to Naver's lack of its own distribution center and logistics hub, its biggest weakness compared to competitors like Coupang. Vendors operating on Naver have to pay companies like CJ Logistics and Hanjin Transportation to deliver their products.

Naver and CJ Logistics have already been strengthening their alliance in logistics since earlier this year. The two joined hands in April to introduce a fulfillment service, starting with LG Household & Health Care products sold on Naver’s own brand store. Naver is already using CJ Logistics' 115,700 square meter (1,245,000 square foot) fulfillment center in Gwangju, Gyeonggi, built in 2018, which is equal to the size of 16 soccer fields.

The two companies also share similar goals regarding content businesses, the ultimate goal being to dominate the global content market with homemade K-content. Analysts predict they can create massive synergy if they merge their respective intellectual properties.

CJ Group is expanding its businesses into various content genres, through a partnership between CJ ENM and Studio Dragon. Naver has a huge presence in the United States and Japan’s webtoon market and has massive influence in Southeast Asia through its mobile messenger app Line.

Once the two companies start working together, TV series produced by CJ ENM can be distributed through Naver and Line app in Japan and Southeast Asia, while Naver can use CJ’s production capability to film content using its own intellectual property.

Following news reports, CJ Logistics and CJ ENM released a statement Wednesday saying while the companies are “looking into various ways to increase competitiveness and corporate value, nothing has been set in stone”.

It added that the two companies will release an official statement “when details are finalized” or “within the next month”.

Share prices of CJ Logistics rose 0.55 percent Thursday, following the news of a possible stock swap with Naver.

BY HA SUN-YOUNG, KANG JAE-EUN [kang.jaeeun@joongang.co.kr]