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South Korea's Daum, Kakao shareholders approve merger

By Se Young Lee

SEOUL (Reuters) - Shareholders of South Korean internet portal operator Daum Communications Corp and messaging app company Kakao Corp on Wednesday approved a merger of the two firms in an all-stock deal that values Kakao at more than $3 billion.

Kakao's KakaoTalk is the undisputed chat leader in South Korea, but its global user base is far smaller than the likes of Facebook Inc's WhatsApp or Naver Corp's Line.

The merger with Daum, South Korea's No. 2 internet search company, will give Kakao new lines of revenue and boost its resources for overseas expansion.

The deal, announced in May and set to be completed in October, is also effectively a back-door listing that allows Kakao to avoid a time-consuming initial public offering.

According to regulatory filings, Daum will issue 43 million new shares to Kakao shareholders based on a valuation of 72,910 won per share, valuing the messaging app operator at 3.1 trillion won ($3.06 billion).

But Daum failed to muster the necessary two-thirds vote from its shareholders for a set of changes to its articles of incorporation, some of which could have given the merged company greater fund-raising flexibility in the future.

Some of the changes called for giving the enlarged entity the right to double the maximum number of shares it can issue to 200 million and to sell convertible preferred shares with voting rights. Both could have a dilutive effect on shareholder value.

Daum spokeswoman Jody Chung said the vote rejecting the changes to its articles of incorporation has no impact on the merger or the company's medium- to long-term strategy.

Daum's shares ended down 5.9 percent on Wednesday, their biggest daily percentage drop since February 2013.

"It appears that some investors may have read too much into the rejection and speculated that there might be something going on, but there was nothing to suggest that the merger is going to fall apart," said Park Jung-hoon, a fund manager at HDC Asset Management, adding that some investors may have opted to take profit on the stock as well.

While Daum did not disclose the vote count or which investors opposed the changes, a spokeswoman for South Korea's National Pension Service, the world's fourth-largest pension fund, said it voted against some of the changes to protect its interests.

The fund, which held a 6.9 percent Daum stake as of this month, is known to occasionally flex its muscle on ballot proposals, voting no on 216 of 2,441 votes, or nearly 9 percent of the time, in the first quarter of 2014.

The combined entity will be called Daum Kakao, but that needs to be approved by shareholders at a post-merger shareholder meeting.

(Reporting by Se Young Lee; Editing by Michael Perry, Kenneth Maxwell and Ryan Woo)

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