Kakao Union Opposes Split Despite $12.6 Billion Potential Valuation Gain

Kakao union pushes back against planned split

A dispute is intensifying over Kakao Corp.'s planned corporate split, unveiled to accelerate investment in artificial intelligence. Kakao's labor union has come out against the plan, arguing that dividing the company in two would not divide responsibility for management failures or for employment and working conditions. The union plans to seek groupwide bargaining to prevent the split from leading to job insecurity or weaker labor conditions.

The Kakao chapter of the Korean Chemical, Textile, Food and Allied Industries Union held a ceremony at Pangyo Station Square on Aug. 26 to declare joint bargaining across the Kakao group. Employees from Kakao and major affiliates presented a joint set of demands and called for bargaining at the group level, while also staging a rally against the split.

The protest marked the union's first large-scale collective action since Kakao announced on Aug. 21 that it would divide the company into KakaoAI and KakaoX through a pro rata split. The union had earlier said it was difficult to assume Kakao would change simply by adopting a new governance structure. It said management first needed to explain what had changed after years of repeated executive reshuffles and decision-making failures, excessive working hours, workplace harassment, and controversies over corruption and favoritism.

The union took issue with Kakao's rationale for the split, including raising corporate value and improving decision-making and capital allocation. It argued that the company's depressed valuation was not caused solely by its complex business structure. Splitting the legal entity without first addressing repeated management failures and an unaccountable decision-making structure would not amount to fundamental reform, the union said.

The union also voiced concern that KakaoX could treat major affiliates primarily as an investment portfolio focused on profitability and corporate value. In that case, the burden of reduced investment, business adjustments, cost cuts and restructuring could be shifted onto workers. It also called for an explanation of how existing governance bodies, including the CA Council, Kakao's group control tower, and K Cube Holdings, would change after the split.

Employment has also emerged as a key issue. The union said the transfer of employees would only be the starting point. More important, it said, is how jobs and working conditions would be protected if restructuring, asset sales, mergers, spin-offs or business transfers follow the split. It also criticized the company for failing to provide sufficient information to most employees during the announcement process and for not consulting the union in advance.

In joint bargaining, the union said it wants to discuss accountable management, job security, fair distribution of performance-based compensation, prior consultation on organizational restructuring, asset sales and spin-offs, transfers within the group, and group-level employment and welfare safety nets. While wage, compensation, job security, divestment and restructuring issues arise at individual entities, major decisions on investment, business reorganization, personnel and capital allocation are made at the group level, making a bargaining structure with the actual decision-makers necessary, it said.

Kakao's board decided on Aug. 21 to split the company into newly created KakaoAI and surviving entity KakaoX through a pro rata split. KakaoAI will oversee KakaoTalk-based advertising, commerce and AI businesses. KakaoX will manage stakes and investments in major affiliates in finance, mobility and content, along with share sales, mergers and acquisitions, and capital allocation. Based on net asset book value at the end of June, the split ratio was set at 0.3648537 for KakaoAI and 0.6351463 for KakaoX. Existing shareholders will receive shares in both companies.

Kakao says the split will allow the market to value the company more appropriately. Brokerages on average value Kakao's individual businesses and affiliate stakes at a combined 34.2 trillion won ($24.7 billion), compared with the company's average market capitalization of 16.8 trillion won ($12.1 billion) over the past three months. That leaves a gap of 17.4 trillion won ($12.6 billion), which Kakao says could narrow once KakaoAI and KakaoX are valued separately.

The union called on the company to disclose and discuss the impact of the split on jobs and working conditions at Kakao and its major affiliates before the extraordinary shareholders' meeting in December.

Kakao's restructuring plan will take effect on Jan. 1 after approval at an extraordinary shareholders' meeting on Dec. 17. KakaoAI is scheduled to relist on Jan. 27, and KakaoX will change its listing on the same day. The union said that if the company makes decisions at the group level, workers will also bargain and respond at the group level.

Kim Dae-young, Hankyung.com reporter kdy@hankyung.com