[Exclusive] LG Uplus Abandons Acquisition of Native OTT 'Watcha'

Considering 40 Billion Won Investment for New Business Halted
Financial Investors Oppose, Watcha's 49 Billion Won CB Issuance and Other Obstacles

[Asia Economy Reporter Kwangho Lee] It has been confirmed that LG Uplus has abandoned its plan to acquire the native online video service (OTT) ‘Watcha.’ According to multiple capital market insiders, LG Uplus intended to acquire Watcha to promote new platform businesses such as media, but has put the plan on hold for now.

On the 20th, according to the investment banking (IB) industry, LG Uplus stopped reviewing the acquisition of Watcha. They discussed acquiring new shares of Watcha worth around 40 billion KRW to become the largest shareholder. However, the plan fell through due to opposition from existing financial investors (FIs) such as venture capitalists (VCs).

An IB industry insider said, “Watcha CEO Park Tae-hoon tried to persuade shareholders within December but ultimately could not find common ground,” adding, “No shareholder agreed to LG Uplus taking management rights at a valuation much lower than the existing one.”

Convertible bonds (CBs) issued by Watcha also posed an obstacle. Watcha issued CBs at the end of last year to raise 49 billion KRW, during which it was valued at 338 billion KRW. It was confirmed that Dunamu, the operator of Upbit, and VC Inlight Ventures provided funding at that time. Generally, CB holders request redemption when the major shareholder changes. Even if Watcha receives investment from LG Uplus, a significant amount of funds would need to be injected to redeem the CBs.

It was also confirmed that LG Uplus was not the only party pursuing the acquisition of Watcha. Before LG Uplus, a certain KOSDAQ company and others also considered acquiring Watcha. They offered higher amounts than LG Uplus. CEO Park reportedly hoped to be incorporated as a subsidiary of LG Uplus despite the somewhat lower offer after much deliberation.

A source familiar with Watcha’s situation said, “Ultimately, opposition from FIs and the pressure to redeem CBs overlapped, causing the deal review to collapse,” adding, “No buyer would want the invested funds to be immediately used for redemption.” The source continued, “While understanding the FIs’ position, many also view that the valuation proposed by LG Uplus is not that low,” and added, “It seems difficult for Watcha’s corporate value to rise further.”

According to Watcha’s audit report as of 2021, the company has been in a state of capital erosion for two consecutive years. Operating losses have continued to increase, signaling red flags for profitability. Falling into a deficit pit, accumulated losses have already exceeded 200 billion KRW. As of the end of last year, Watcha’s deficit reached 201.7 billion KRW. The total equity is also negative 32.5 billion KRW, indicating complete capital erosion.

Watcha gained recognition in 2011 as a movie review and recommendation service. It was founded by CEO Park Tae-hoon, a graduate of Seoul Science High School and Korea Advanced Institute of Science and Technology (KAIST), who teamed up with Chief Operating Officer (COO) Won Ji-hyun and Chief Technology Officer (CTO) Lee Tae-hyun. The following year, in 2012, it gained presence by receiving investment from Kakao Ventures. The cumulative investment from VCs and other FIs amounts to 107.2 billion KRW.