Kakao Pay backs out of acquisition deal for Shinsegae’s SSG Pay, Smile Pay

Kakao Pay Corp., the mobile payment and digital wallet service unit of South Korean tech giant Kakao Corp., has pulled out of a deal to acquire two rival payment services under Shinsegae Group at the last minute, derailing the country’s retail giant’s restructuring efforts.

According to sources in the investment banking industry on Thursday, Kakao Pay recently notified Shinsegae of its decision to withdraw from the deal just ahead of the final signing, despite the two sides having agreed on most of the terms, including a price estimated at over 400 billion won ($287.2 million).

It was “an abrupt, last-minute decision by Kakao Pay” after both sides had ironed out all key differences, said a person familiar with the matter. “As far as I understand, its parent company, Kakao, ordered the deal to be halted.”

Shinsegae confirmed the collapse of the deal in a statement saying, “Our company and Kakao Pay negotiated a strategic partnership in the mobile payment business but suspended the talks due to changes in each company’s strategic direction.”

The retail group added that the parties had reached an agreement on key elements, including the enterprise valuation, but ultimately decided to end negotiations “after changes in the investment priorities of Kakao Group.”

The retail giant said it will focus on growing its in-house digital payment capabilities and boosting its e-commerce competitiveness.

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Since early this year, Kakao Pay had been in exclusive negotiations with Shinsegae Group’s flagship affiliates Shinsegae Inc. and E-Mart Inc. to acquire SSG Pay operated by SSG.COM and Smile Pay run by E-Mart unit Gmarket Inc.

The deal began as a public auction, but eventually Kakao Pay emerged as the sole remaining bidder.  

The mobile wallet operator viewed the acquisition as a strategic opportunity to close the widening gap with Naver Pay, the dominant player in Korea’s digital payments market operated by Naver Corp.

Despite its initial commitment, Kakao Pay’s parent company reportedly intervened and called for a re-evaluation of the transaction amid growing financial caution tied to Kakao’s upcoming artificial intelligence project.

Kakao sold off its stake in SK Square Co. for 430 billion won in a block trade this month to raise funds for AI development, in line with the Korean government’s AI initiative, driven by the new President Lee Jae-myung administration.

Sources close to the matter said the mobile payment deal was ultimately deprioritized, as it was not aligned with Kakao’s AI-driven investment strategy.

Kakao Pay has also faced recent regulatory scrutiny over the financial authority’s findings that it shared its users’ credit information with China’s Alipay without user consent since 2018. It was slapped with a penalty for that while waiting for additional corrective actions from the Financial Services Commission.

Some critics suggested the M&A attempt may have been initiated to divert attention from the controversy without prior consultation with its parent company.

SHINSEGAE’S RESTRUCTURING PLAN HITS A SNAG


The failed transaction marks a second setback for Shinsegae Group’s efforts to divest digital non-core assets to strengthen its balance sheet.

In 2023, the retail giant pursued a sale of the mobile payment units to Viva Republica, a leading Korean fintech unicorn and operator of the country’s mobile financial super app Toss, in a deal reportedly worth some 700 billion won. That deal also collapsed.  

Shinsegae put them back up for sale earlier this year amid intensifying competition in Korea’s digital payments space, where Naver Pay and Toss have quickly gained ground.

The group’s e-commerce platforms, SSG.COM and Gmarket, have also struggled to retain market share.

The deal's collapse could also complicate the group’s Chairman Chung Yong-jin’s plan to restructure the family's holdings.

Chung, who controls E-Mart, and his sister, Shinsegae Inc. President Chung Yoo-kyung, who oversees the group’s department store and fashion businesses, currently share joint control of SSG.COM with stakes of 45.6% and 24.4%, respectively.

The older brother was projected to acquire Shinsegae’s stake in SSG.COM to consolidate ownership of the e-commerce platform with proceeds from the now-canceled deal.

In preparation for the sale, SSG.COM in May split off its SSG Pay division to create a new entity, Platinum Payments.

Write to Jun-Ho Cha and Jong-Kwan Park at chacha@hankyung.com

Sookyung Seo edited this article.