Korean Kakao Pay’s acquisition of US' Siebert collapses

South Korean Kakao Pay Corp.'s takeover deal of US-based Siebert Financial Corp. has failed amid the growing legal risks surrounding top executives of the leading mobile platform in the Asian country.

Kakao Pay, the mobile payment and digital wallet service unit of Kakao Corp., in May bought a 19.9% stake in Siebert at 23.3 billion won ($17.9 million) with an agreement to purchase an additional 31.1% stake to acquire the Nasdaq-listed diversified financial service provider in 2024.

Kakao Pay and Siebert on Wednesday said that they agreed to terminate the second tranche stock purchase agreement previously signed, however. Siebert is set to pay $5 million to Kakao Pay as a settlement fee in installments for 10 quarters from March 29, 2024, to June 30, 2026.

That came as Kakao Corp. is facing the toughest time in its 13-year history as South Korea has been stepping up probes into the company over alleged violations of the Capital Markets Act and unfair business practices. Its top executives including founder and chairman Kim Beom-soo, known as Brian Kim, are under investigation by local prosecutors’ over alleged stock manipulation in the company’s acquisition of K-pop pioneer SM Entertainment Co.

“After careful consideration, we believe the decision to terminate the stock purchase agreement is in the long-term interest of Siebert and our stockholders,” said Siebert Chairman and CEO John J. Gebbia in a joint statement.

“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.”

NEGATIVE ISSUE FOR SECOND TRANCHE PURCHASE AGREEMENT

In a letter last month Siebert told Kakao Pay that there was a significantly negative issue that would make it difficult for them to complete the second deal. The US company also notified the US Securities and Exchange Commission (SEC) that the South Korean authorities have taken measures to deal with the risks of Kakao affiliates, which had a negative impact on Kakao Pay.

Siebert, founded in 1967, provides a full range of brokerage and financial advisory services including securities brokerage, investment advisory and insurance offerings, securities lending, and corporate stock plan administration solutions through six subsidiaries.

Kakao Pay had planned to expand its business into overseas markets such as Southeast Asia with the acquisition of Siebert.

The South Korean fintech firm is set to maintain its right to designate one director to Siebert’s board of directors despite the latest agreement as it holds a 19.9% stake, Kakao Pay and Siebert said.

“We welcome the opportunity to continue our strategic investment in Siebert and look forward to working collaboratively with Siebert to help grow its business,” said Kakao Pay CEO Shin Won-Keun.

Write to Mi-Hyun Jo at mwise@hankyung.com
 

Jongwoo Cheon edited this article.