Kakao shares fell sharply by over 10% on Friday following the company’s announcement of a plan to split its operations. The South Korean tech giant revealed it would separate into two entities: KakaoAI, focusing on artificial intelligence businesses integrated with its KakaoTalk messenger, and KakaoX, overseeing existing core businesses and investments. The news, however, was met with significant selling pressure from the market.
The spin-off, known as an “in-kind split” (인적분할), means existing shareholders will receive shares in both the newly created KakaoAI and the surviving KakaoX. Kakao stated its intention is to enhance the specialization of each business and achieve a clearer market valuation. The split ratio is set at 0.36 for KakaoAI and 0.64 for KakaoX, based on net asset book value. Yet, investors expressed apprehension regarding the future growth prospects and valuation of the two distinct companies.
This negative market reaction stems from past experiences where spin-offs of Kakao’s subsidiaries, such as Kakao Bank and Kakao Pay, led to concerns about a ‘holding company discount’ on the parent company’s stock. Many in the market believe it will take time to determine if this spin-off truly enhances shareholder value. Moreover, worries exist about potential synergy loss between the AI business and other existing services as they are separated.
Kakao’s stock plunge highlights how major corporate restructuring by large platform companies can impact market sentiment. This development is likely to cast a negative shadow over the broader Kakao group’s stock performance and investor confidence, potentially increasing scrutiny on governance changes across other platform companies.
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