[why&next] Lionheart IPO Postponed... Market Instability and Split Listing Controversy

[Asia Economy Reporter Seungjin Lee] Lionheart Studio, a subsidiary of Kakao Games, has withdrawn its initial public offering (IPO). This appears to be due to several adverse factors, including recent market instability and concerns over overlapping listings with Kakao Games.

Kakao Games Stock Surges Following Lionheart's IPO Withdrawal

On the 14th, a day before Lionheart Studio, a subsidiary of Kakao Games, announced the withdrawal of its IPO, Kakao Games' stock price surged by more than 13%. Kakao Games' stock had recently been on a downward trend. This reflected market concerns that the company’s value would decline as Lionheart, the developer of Kakao Games' flagship title "Odin: Valhalla Rising," pursued a public listing.

However, the market reacted immediately when Lionheart announced the withdrawal of its IPO. On the 13th, Lionheart disclosed a "withdrawal report," stating, "Considering the overall circumstances, including the current domestic and international environment where it is difficult to properly evaluate the company's value, we have submitted the IPO withdrawal report in consultation with the joint lead managers."

Earlier, when news of Lionheart's listing surfaced, minority shareholders opposed it, fearing a drop in Kakao Games' stock price. In September, a national petition was even submitted to the National Assembly requesting a ban on Lionheart's split listing.

Withdrawal Not Cancellation, But Postponement

Lionheart plans to reschedule its listing and submit a securities registration statement again. This is not a complete abandonment of the IPO but a postponement considering various variables. Although Kakao Games' stock price rebounded, if Lionheart attempts to list again in the future, the stock price is expected to be affected once more.

The postponement of Lionheart's listing was primarily influenced by the recent unstable stock market. Previously, on the 30th of last month, Lionheart submitted a securities registration statement to the Financial Services Commission for a KOSDAQ listing. The company planned to list approximately 84.9 million shares, and considering the desired public offering price range (36,000 to 53,000 KRW), the expected market capitalization was estimated to be up to 4.5 trillion KRW.

However, domestic stock prices continued to plummet. Especially as major domestic game companies hit 52-week lows and game stocks struggled, the prevailing analysis was that Lionheart’s desired public offering price would fall far short.

Additionally, as stock prices hit bottom day after day, concerns over so-called "split listings" increased. When news of Lionheart's listing plans spread, investors opposed it, fearing a drop in Kakao Games' stock price.

In September, a national petition was submitted to the National Assembly requesting a ban on the split listing of Lionheart Studio. Amid these circumstances and the continuous decline in Kakao Games' stock price, it appears that the company decided to withdraw the listing in consideration of public opinion.

Lionheart Listing as a Stepping Stone for Kakao Games' Global Expansion

Lionheart's listing is a crucial key for Kakao Games to expand its market globally. Having proven its game development capabilities with Odin, Lionheart aims to focus on game development by securing funds through the listing, while Kakao Games strengthens its position as a publisher.

During the first-quarter earnings conference call this year, Kakao Games CEO Jaegyeon Cho explained regarding Lionheart's IPO, "We thought sufficient funding was necessary for Lionheart's global expansion," and added, "Since Lionheart's performance is fully reflected in Kakao Games' results, it will also help enhance Kakao Games' corporate value."

This year, Odin is also playing the role of spearheading Kakao Games' core goal of global expansion. Odin, which is currently serviced in regions such as Taiwan, Hong Kong, and Macau, aims to enter the Japanese market in the first quarter of next year and the North American and European markets in the second quarter. For this, securing funds through an IPO is necessary.

Kakao Games acquired Lionheart last November for 1.2041 trillion KRW. Kakao Games' European subsidiary holds a 30.37% stake as the largest shareholder, and Kakao Games holds 24.57%, making a combined shareholding of 54.94%.