Kakao will seek to pass an agenda item on a corporate spin-off at an extraordinary general meeting of shareholders on Dec. 7, but the stake held by founder Kim Bum-soo (김범수) and related parties alone does not meet approval requirements, turning attention to how institutional and retail shareholders will vote. Kakao plans to split the company through a spin-off into KakaoAI, which will oversee KakaoTalk and its AI business, and KakaoX, which will handle investments in and management of major affiliates.

According to the industry on Wednesday, the combined stake of Kim and related parties is 24.08%. As the spin-off agenda item requires approval from at least one-third of the total issued shares, based on a simple stake calculation Kakao needs at least about 9.25 percentage points of additional votes in favour.

Kim's side holds 24 percent... whether major shareholders back the plan is a variable.

Kakao resolved at a board meeting on Aug. 21 to pursue the spin-off. KakaoAI will focus on KakaoTalk-based AI, advertising and commerce businesses, while KakaoX will take charge of investment and management of major affiliates such as content, tech-finance and mobility. Existing shareholders will receive shares in both companies according to the split ratio based on net asset book value, with about 36% for KakaoAI and about 64% for KakaoX.

The split ratio has not yet been finalised. Kim Do-young (김도영), the designated head of KakaoX, said at a meeting with minority shareholders on Oct. 20 that the final ratio would be set to reflect changes including the grant of restricted stock units, or RSUs, to employees. If approved at the shareholders meeting, Kakao plans to complete the split on Jan. 1 next year, with KakaoAI to be relisted and KakaoX to undergo a listing change on Jan. 27.

Under commercial law, a corporate spin-off requires a special resolution at a shareholders meeting. It must meet two requirements at the same time: approval by at least two-thirds of voting rights of shareholders present and by at least one-third of total issued shares. Even if all of the 24.08% stake held by Kim's side votes in favour, it falls short of the minimum requirement.

Among major shareholders, Tencent affiliate Maximo holds 5.74%, the National Pension Service holds 5.39%, and BlackRock-related entities hold 5.01%.

If Kim's side and these major shareholders all vote in favour, the combined stake would be 40.22%, exceeding the minimum approval threshold for a special resolution. By a simple calculation based on total shares, if attendance is 60%, more than 40% of total shares would have to vote in favour for the proposal to pass. This is a hypothetical calculation that does not reflect factors such as non-voting shares, and the actual result will vary depending on how major shareholders vote and how many shares are represented at the meeting.

Ahead of the spin-off, a campaign to persuade shareholders... the votes of institutions and retail investors are key.

Kakao's labour union opposes the spin-off, saying measures to protect jobs and working conditions are insufficient. The union says it will target key shareholders such as the National Pension Service in its persuasion effort and will seek to defeat the agenda item at the shareholders meeting.

In the earlier process of merging Kakao Investment, the shares that expressed opposition accounted for only about 2% of total issued shares. That fell far short of the 20% threshold needed to block a small-scale merger. Still, as expressing opposition to a merger and voting at a spin-off shareholders meeting are separate matters, it is difficult to interpret that as a proxy for spin-off approval rates.

Kakao is also moving to persuade shareholders. After an online meeting on Sept. 16, it held a second meeting with minority shareholders on Oct. 20 in a hybrid format combining offline and online sessions.

Shin Jong-hwan (신종환), Kakao's chief financial officer, said on the day that he had met institutional investors at home and abroad over the past month to address questions, adding, "I think it may be possible to pass the special resolution." If it is voted down, Kakao would have to listen to shareholder opinions and then decide again, but he added that he could not answer at present whether it would try again.

At the meeting, minority shareholders raised concerns including that KakaoAI's split ratio is only 36% and the possibility of a decline in corporate value after the split. Kim said the split ratio is only the share allocation ratio based on net asset book value and is not a corporate value ratio, and that actual value will be determined by the market after relisting.

Kakao also denied the possibility of block deals and new share issuance that shareholders have raised. Shin said there would be no block deal, or off-hours bulk trading, by founder Kim, and that the company is not considering a third-party paid-in capital increase for KakaoAI. Kakao also said it can cover AI infrastructure investment with its own cash-generating ability.

It also presented a shareholder return plan. KakaoAI will maintain its existing policy of returning 20 to 35 percent of adjusted free cash flow on a standalone basis, but will raise the payout ratio to as much as 40 percent if free cash flow increases by at least 50 percent from the previous year. KakaoX plans to use 30 percent of after-tax dividends received from subsidiaries and as much as 30 percent of investment gains excluding capital costs and taxes as resources for shareholder returns. It will also use part of after-tax investment gains from selling its stake in Dunamu to buy back and cancel shares worth 300 billion won over three years after the split.

Kakao plans to finalise the shareholder record date for the extraordinary general meeting on Nov. 23 and hold a vote on the spin-off agenda item on Dec. 17. Approval would be more likely if Kim's side and major institutional and foreign shareholders all vote in favour, but it could be voted down if some oppose it or if the votes in favour fall short relative to voting rights represented at the meeting. Ultimately, whether Kakao's post-split growth strategy and shareholder return plan translate into votes in favour is expected to determine whether the spin-off goes ahead.