October 14, 2019 / 3:53 AM / 4 months ago

South Korea's Netmarble branches out with proposed Woongjin Coway deal

SEOUL (Reuters) - South Korea’s Netmarble (251270.KS) was named the preferred bidder on Monday for a stake in water purifier rental firm Woongjin Coway (021240.KS) valued at $1.3 billion, as the gaming company seeks to diversify its revenue streams.

FILE PHOTO: The logo of Netmarble Games is seen at its headquarters in Seoul, South Korea, March 25, 2016. REUTERS/Kim Hong-Ji/File Photo

Net Marble said the purchase of a 25% stake in Woongjin Coway would help generate stable cash flow amid a dearth of attractive gaming firm targets with stable profits and developing capabilities.

The proposed deal would be Netmarble’s first major deal this year since an attempt to buy crosstown gaming rival Nexon (3659.T) faltered in July.

It is also the latest move by Netmarble, the world’s No.5 mobile gaming firm by revenue, to find new growth outside its core business against the backdrop of slowing mobile gaming growth and a block on exports of Korean games to China.

Market research firm Euromonitor said the global mobile games growth slowed to 15% last year, from 24% growth in 2017, although Netmarble played down that factor.

“We are looking at the Coway buy to diversify into new business, not because we believe that the gaming industry has hit its limit or its growth is uncertain,” Netmarble Vice President Seo Jang-won said on a conference call, adding the company would continue to look for gaming acquisitions.

The 25% stake is worth about 1.5 trillion won ($1.27 billion) based on Woongjin Coway’s current share price. Woongjin Thinkbig said on Monday it was negotiating terms with Netmarble, but gave no further details.

Netmarble, headed by billionaire founder Bang Jun-hyuk, said it is betting big on the growth potential of subscription-based rental services in its mainstay Korean market, as well as Southeast Asia and the United States.

Euromonitor said it saw synergies in the proposed transaction, given Woongjin Coway’s core subscription, or rental, service.

“If Netmarble’s IP such as game character is applied on Woongjin Coway’s products, Netmarble’s acquisition of Woongjin Coway could expect to deliver the synergy effect on both gaming and connected-consumer appliances industries,” it said. “Additionally, this acquisition will enable it to secure stable cash flow.”


However, some analysts questioned the potential for synergies between the country’s largest gaming company and Woongjin Coway, which rents water purifiers, air purifiers, bidets and bed mattresses.

That concern appeared to be reflected in a 0.5% dip in Netmarble’s shares and a small 0.9% gain in Woongjin Coway shares. Conversely, shares in Woongjin Thinkbig (095720.KS), Woongjin Coway’s biggest shareholder, jumped 24% and shares in parent company Woongjin Co Ltd (016880.KS) stocks soared 30%.

“It is hard to picture synergies between gaming and rental businesses, and the gaming business is more individually focused than home appliances,” said Ahn Jae-min, an analyst at NH Investment & Securities.

Netmarble’s diversification strategy is proving to be broad. It last year bought a 26% stake in Big Hit Entertainment, which manages the Korean boy band, BTS, for about $170 million.

Netmarble said it has also invested in non-game firms involved in artificial intelligence, blockchain and internet banks. However, it added their growth is at nascent stage and their ability to generate profits is limited.

Woongjin Group had announced in June that it planned to sell a 25.08% stake in Woongjin Coway, just three months after the group regained control of the unit for 1.89 trillion won ($1.6 billion) from private equity firm MBK Partners.

Reporting by Hyunjoo Jin and Ju-min Park; Editing by Darren Schuettler and Jane Wardell

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