South Korean Kakao messaging app to merge with portal Daum

The merger will combine messaging, a search engine, display advertising and a gaming business

South Korea's second-largest Web portal, Daum Communications, will merge with dominant local mobile messaging app Kakao to strengthen the companies' market positions and gain global competitiveness, they said Monday.

The new company will be called Daum Kakao and will be listed in October, according to a regulatory filing by Daum.

The KakaoTalk app is available across Asia, but its users are heavily concentrated in South Korea, where nine out of 10 smartphone owners have the app. South Korea's largest portal, Naver, has its own mobile messaging service, Line, which passed 350 million users last February as it increased its presence from Japan and Asian markets to other countries such as Spain and Mexico, according to data from Statista.

Analysts see the merger as positive for the companies.

"We expect quite a synergy effect as Daum's value as an Internet portal, and its search engine, display ads and game businesses meet Kakao's mobile messenger and mobile services," said Ahn Jae-min, an analyst at Kiwoom Securities, in a research note. Naver has dominated the local portal market in the last 10 years, he noted.

The deal echos that of Facebook buying instant messaging service WhatsApp for about $16 billion in February. More than 450 million people use that app every month.

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