Kakao (035720.KS) said its plan to restructure the business through a spin-off is aimed at "strengthening expertise by business line to concentrate management resources, streamlining decision-making and enhancing shareholder value."
Kakao's board approved the spin-off plan on the 21st, dividing the company into Kakao X, which will handle investment operations, and Kakao AI, which will focus on artificial intelligence.
Kim Do-young, CEO of Kakao Investment and head of the group investment strategy office at Kakao's CA council, who has been named to lead Kakao X, said at a press briefing that day: "The biggest goal of this spin-off is to resolve the significant 'conglomerate discount.'"
Kim noted that the combined value of Kakao's individual business segments, as assessed by domestic and overseas securities firms, reaches 34.2 trillion won, but its average market capitalization over the past three months stood at just 16.8 trillion won, an undervaluation of more than 50%.
Kim also stressed the need for a re-rating as an AI company. "In the past, the price-to-earnings ratio (PER) ranged from 38.2 times up to as much as 80 times, but it currently stands at around 21.9 times," Kim said, calling it "an excessively low valuation for an IT services company with a dominant market share." Kim added: "If Kakao establishes its identity as an AI company, it could be re-rated to a PER of 30 to 40 times, reflecting a market premium."
Faster decision-making and more efficient resource allocation were also presented as key reasons. "Over the past five years, 85% of Kakao's board decisions, or 23 cases, involved supporting subsidiaries with no bearing on maximizing the value of the parent company," Kim said, pointing out that "most management resources and focus were consumed in resolving the problems of struggling subsidiaries and providing them with capital."
Kim stressed that the restructuring "will completely break the inefficient structure in which the parent company's resources were spent putting out fires rather than on what matters."
