[Exclusive] Kakao to Pay 50 Billion Won to Investors Amid Hair Salon Sale Difficulties

Difficulties in Wyatt Sale After Kakao Withdrawal
Kakao Investment to Buy Back Investor Shares

Kakao Investment, a 100% subsidiary of Kakao, has decided to repurchase shares from investors of Wyatt, the operator of Kakao Hairshop. This decision came as Kakao decided to close the hairshop and the sale of Wyatt fell through, prompting investors to exercise their put options (the right to sell at a predetermined price).

According to a comprehensive report by Asia Economy on the 30th, Kakao Investment is confirmed to be acquiring shares from Wyatt's minority shareholders. They are currently identifying the scale of shares each shareholder wishes to sell and proceeding with the acquisition process. Kakao Investment is the largest shareholder of Wyatt, holding 24.19% of its shares.

This is in accordance with the shareholder agreement Kakao Investment signed with the investors. The agreement allows the exercise of put options if Wyatt cannot be sold and the investment cannot be recovered.

Wyatt is a beauty shop customer management solution company established in 1998. It became a Kakao affiliate in 2015 and has operated Kakao Hairshop since then. Subsequently, it received investments from multiple private equity funds and investment associations. In 2021, it attracted 48 billion KRW in investments from Korea Investment Partners, IBK Industrial Bank, Kiwoom Securities, Honest Ventures, and others. This investment was premised on collaboration with Kakao affiliates and proceeding to an initial public offering (IPO).

However, just two months after the investment, Kakao abruptly announced its withdrawal from the hairshop business. This was due to controversies over its sprawling business expansion infringing on local small businesses. Criticism, especially from political circles, intensified, leading Kakao to decide to wind down affiliates including Wyatt. The hairshop service was also discontinued. Kakao Hairshop was removed from the 'More' tab on KakaoTalk, and the service name dropped 'Kakao'.

The problem is that finding a new owner for Wyatt has become difficult. In May last year, with EY Hanyoung as the lead manager, Kakao attempted to sell the hairshop service for 100 billion KRW but failed. The disappearance of Kakao's halo effect lowered Wyatt's valuation and reduced its sales. Wyatt's sales last year were 58.3 billion KRW, down 4.1 billion KRW from the previous year. Operating losses amounted to 3.8 billion KRW.

Investors urged for a plan to recover their investments, but the situation did not improve. Ultimately, as the sale failed by the promised end of June, the put options were exercised.

Kakao Investment needs about 50 billion KRW to buy back these shares. This amount includes the principal investment plus an annual interest rate of 4%. However, its financial capacity is insufficient. As of the end of last year, Kakao Investment held 22 billion KRW in cash equivalents. Therefore, Kakao Investment decided to borrow 20 billion KRW short-term from Kakao.

Kakao plans to continue efforts to sell Wyatt. Although the complex interests with investors will be resolved, finding a new owner is still expected to be challenging. A Kakao representative said, "Despite withdrawing from the hairshop business, the reason for additionally purchasing shares is to protect the investors."