Kakao Pay's Siebert acquisition falls apart amid scandal backlash

Industry

Published: 20 Dec. 2023, 18:21

Kakao Pay's Siebert acquisition falls apart amid scandal backlash

Kakao's headquarters in Pangyo, Gyeonggi, on Nov. 22 [YONHAP]

Kakao Pay's bid to acquire Siebert Financial, a New York-based financial company, collapsed due to regulatory concerns linked to an alleged stock manipulation incident during its acquisition of K-pop agency SM Entertainment.

Kakao Pay announced in a public disclosure Wednesday that the two companies have agreed to mutually terminate the second round of the stock purchase agreement, in which Kakao Pay was to acquire the remaining 31.1 percent stake in Siebert Financial.

It had initially acquired a 19.9 percent stake, or 8,075,607 shares, of Siebert stock in May in the first round of stock purchase. Kakao Pay will retain this 19.9 percent stake in Siebert.

Under the initial deal made by the two companies in April, Kakao Pay was to secure a 51 percent stake in Siebert Financial for 103.9 billion won ($79.8 million). After acquiring its 19.9 percent stake in May, the second stock purchase for the remaining shares was scheduled to be completed next year.

"After careful consideration, we believe the decision to terminate the stock purchase agreement is in the long-term interest of Siebert and our stockholders. This resolution places Siebert in the best position to execute on the exciting opportunities before it while removing any uncertainty that might have otherwise been present had this compromise not been reached," said John J. Gebbia, chairman and CEO of Siebert in a statement.

The collapse of the deal was hinted at last month in a filing that Siebert reported to the U.S. Securities and Exchange Commission, where it mentioned that the company delivered a notice to Kakao Pay that the stock purchase agreement might be terminated as a “material adverse effect has occurred with respect to Kakao Pay in light of, among other events, Korean authorities taking action against Kakao Pay, its parent company Kakao Corp., and their affiliates.”

Siebert’s notice refers to Kakao’s alleged stock manipulation where it was accused of artificially injecting 240 billion won into SM Entertainment to take over the K-pop agency against HYBE in February.

Bae Jae-hyun, chief investment officer of Kakao, and the corporate body were indicted in October under the allegation, and six other top executives including Kakao founder Kim Beom-su were referred to the prosecution for further investigation last month.

If the corporate entity is found guilty, Kakao, as the largest shareholder of its internet-only bank Kakao Bank, would lose its eligibility as the major shareholder and be required to divest shares exceeding a 10 percent stake under the current banking act.

Kakao has been working to expand its business portfolio overseas, aiming to increase the revenue proportion from overseas markets by more than 30 percent by 2025.

Acquiring SM Entertainment has been part of its strategy, seeing the K-pop industry’s global market potential.

Another overseas acquisition in the works by Kakao’s ride-hailing affiliate, Kakao Mobility, may face similar consequences to Kakao Pay. Kakao Mobility is attempting to buy up an 80 percent stake in the Germany-based taxi platform FreeNow within this year, according to media reports, having made the proposal to the European mobility service provider last month.

Kakao Mobility was slapped with a 27.1 billion won fine in June by Korea’s antitrust regulator due to manipulating its ride dispatch algorithm which favored its affiliated taxi drivers in June.

The financial regulator is also probing whether the company exaggerated its revenue by inflating its commission fees.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]