November 22, 2024

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Kakao, Netmarble Games and a couple of leading private equity funds participated in a preliminary bid for Korea’s largest game developer, Nexon, industry sources said Feb. 22.

Initially, the deal -- estimated to be worth between 10 trillion won (US$8.88 billion) and 13 trillion won -- was expected to draw offers from global PEFs and substantial foreign companies like Tencent and Disney.

But at the last minute, some such as Affinity Equity Partners, KKR and The Carlyle Group withdrew, while investment firms such as MBK Partners and Bain Capital joined the bid. 

Nexon's headquarters Nexon

Tencent, whose participation was widely anticipated by market watchers, did not make an offer. But industry sources said the company could wield significant influence, as it owns a 17.7 percent stake in Netmarble and a 6.7 percent stake in Kakao.

Deal managers Deutsche Bank and Morgan Stanley are expected to select a preferred bidder by early April, just ahead of the main bid later that month.

Analysts also say it is possible that a consortium may be established.

“The deal managers had asked for a solo bid at the initial bid stage,” said an industry source. “But as the deal is expected to exceed 10 trillion won, there is still a possibility that bidders could form a consortium.”

“Unlike conventional industries such as manufacturing or consumer goods, it is not easy to improve corporate value by merely cutting costs or streamlining,” an industry source with experience in M&A deals in the game industry said. “Thus, the PEFs would probably want to partner with either Kakao or Netmarble.”

Nexon founder and Chairman Kim Jung-ju and his family are trying to sell a 98.64 percent stake in NXC, the holding company of Nexon Japan. NXC holds 47.98 percent of shares in Nexon Japan, which wholly owns Nexon Korea.

Whichever company submits the winning bid, analysts here believe the deal could create business synergy for Netmarble and Kakao.

Netmarble’s acquisition of Nexon could create the world’s ninth-largest game company. Their combined annual sales amount to 4.7 trillion won, close to Netmarble’s annual sales goal of 5 trillion won by 2020.

For Kakao, the operator of Korea’s most frequently used messenger service, KakaoTalk, it is a good opportunity to enhance its game business, which is led by Kakao Games. The merger could increase the value of Kakao Games, which is expected to go public as early as this year.

By Park Ga-young (gypark@heraldcorp.com)