Weekly News Digest #14

Japan’s LY Corporation Becomes The Largest Shareholder of Kakao Games in ~$370m Restructuring

Japan-based technology group LY Corporation (TYO: 4689), owner of the LINE messaging platform and Yahoo! Japan, is acquiring management control of South Korea-based multi-platform game publisher Kakao Games Corp. (KOSDAQ: 293490) through a capital injection of ~$201m (KRW 300B) in new equity and debt instruments, as well as an estimated $167m secondary share purchase. The investment is channeled through LAAA Investment, a special purpose vehicle established by LY Corporation in Mar’26 to execute the transaction.

The transaction rests on three financial instruments, all closing simultaneously on May 29, 2026:

• The ~$161m (KRW 240B) PIPE tranche issues 17,458,354 new common shares to LAAA Investment via third-party allotment at KRW 13,747 per share, representing 19.4% dilution. Cash payment is due May 29, 2026, with new shares listing on June 12, 2026. The listing is subject to a one-year mandatory lock-up with the Korea Securities Depository (KSD) from the listing date.
• The ~$40m (KRW 60B) zero-coupon convertible bond. It will be convertible to equity from May’27 at a provisional conversion price of KRW 13,812 per share (representing 4.84% of pre-deal shares upon full conversion) and will mature in May’29.
• The secondary purchase agreement (SPA) sees LAAA Investment acquire 18,107,732 existing shares from Kakao Corp. (KRX: 035720). The purchase is governed by a Shareholders Agreement (SHA) signed Mar 24, 2026. The price is undisclosed, estimated at ~$167m (KRW ~249B) at PIPE price. The SPA reduces Kakao Corp.’s stake from 37.55% to 14.57%. 

Post-close, LAAA will hold 33.16%, rising to ~39% if the convertible bonds are exercised and the tag-along obligations from three PE fund shareholders are fulfilled. Including the SPA, the total estimated transaction value is ~$368m (KRW ~549B).

Kakao Games described the transaction as “a strategic decision to leap from a domestic market-focused company to a global game and content enterprise.” The ~$201m (KRW 300B) raised is allocated for global publishing rights, M&A to secure new IPs, and the development of major upcoming titles such as MMORPG Odin Q (Lionheart Studio, targeting PC and mobile in Q3’26) and the Action RPG ArcheAge Chronicles (XL Games, launching on PC & Console), both repeatedly delayed. For LY Corporation, the deal addresses a structural gap in its content pipeline. The LINE ecosystem has reached ~100 million users as of Mar’25 in Japan alone, yet its gaming arm, Line Games, has faced severe financial difficulties, including complete capital impairment. Acquiring Kakao Games gives LY Corp. an established publisher to target Japan and Southeast Asia, replicating KakaoTalk’s distribution model within the LINE ecosystem. For Kakao Corp., the parent company of Kakao Games, the divestiture advances its “choice and focus” strategy launched in late 2025. The group’s affiliate count fell from 119 at the end-2024 to 94 by the end-2025 as capital was redirected toward its messenger KakaoTalk and the deployment of its AI ecosystem. 

Kakao Games went public on KOSDAQ on Sep 10, 2020, at an offering price of KRW 24,000 per share, at the top of its indicative range following record-breaking book-building demand. The stock has declined ~82% from its all-time high, hitting KRW 11,780 as of Apr 3, 2026. At that price, the company’s market capitalisation stands at ~$639m (KRW 966B). The market’s initial response to the deal was cautious: the stock fell ~15% across four consecutive sessions following Mar 25, 2026, as investors flagged dilution risk from the 17.4 million new shares and the complexity of the convertible bond instruments. LY Corporation shares mirrored this downward trend, declining 4.6% over the same four-session period, but have since fully recovered to JPY 393 as of Apr 3, 2026.

Kakao Games operates across mobile, PC, and console segments and was established in its current form in 2016. Its flagship mobile MMORPG title, Odin: Valhalla Rising, drove growth through 2022, after which revenue entered a sustained decline.

Q4’25 consolidated revenue reached ~$70m (KRW 98.9B), down 25.8% YoY and 22.4% QoQ from Q4’24 ~$98m (KRW 133.2B): mobile contracted 38.7% YoY on the absence of new title launches, partially offset by PC growth of 44.9% YoY driven by PUBG collaboration updates.

The company posted a Q4’25 operating loss of ~$9m (KRW 13.1B), widening from a Q4’24 ~$3m (KRW 3.9B) loss and extending a streak of five consecutive quarters of operating losses.

The ownership transfer follows three significant M&A moves. In Dec’20, Kakao Games acquired a controlling stake in Neptune, a South Korea-based mobile games developer, for ~$173m (KRW 193.5B). In Nov’21, Kakao Games Europe BV acquired an additional 30.37% stake in Lionheart Studio, developer of Odin: Valhalla Rising, for a ~$380m (KRW 450B) advance payment, bringing its combined holding to 51.95% and securing global publishing rights for the title. More recently, the company divested its screen golf subsidiary Kakao VX to IVG, a unit of Kakao Investment, for $184m (KRW 259B) in Oct’25.

Kakao Games is looking to a 2026 – 2027 pipeline of nine titles to drive a financial turnaround. In addition to the titles already mentioned, this lineup includes God Save Birmingham, a medieval zombie survival simulator for PC & Console, and Chrono Odyssey, an action MMORPG for PC & Console. Their launches represent the primary revenue catalysts LY Corp is now positioned to support. We will continue to monitor the integration between Kakao Games and LY Corporation’s LINE ecosystem, as well as whether the partnership delivers on its Japan and Southeast Asia expansion thesis. 

Mellow is how 200+ gamedev companies work with talent worldwide. Contracts, IP transfer, compliance, payments — across 50+ jurisdictions, handled in one platform. No patchwork of local providers, manual invoicing, or unresolved compliance gaps. Gaijin Entertainment, Scorewarrior, and Domini Games already run on Mellow.

Learn More

Neon helps game publishers take control of their commerce. Our DTC platform handles everything from webshops and checkout to global payments, tax, and compliance, with full transparency and flat-rate pricing. No black boxes, no restrictions, no surprises. Built by payments, fintech, and gaming veterans, we work hands-on with publishers to optimize revenue and simplify operations. If you’re serious about DTC, we’re serious about helping you win.

Explore the Platform

MERGERS & ACQUISITIONS

Snap (NYSE: SNAP), a US-based social media company, has acquired select assets from Rec Room, a US-based UGC gaming platform, for an undisclosed sum. The acquisition follows Rec Room’s announcement that it will shut down all online services on June 1, 2026, citing costs that consistently outpaced revenue. Select Rec Room employees will join Specs Inc., Snap’s wholly owned AR glasses subsidiary established in Jan’26, to support its multiplayer XR experience capabilities. Rec Room, founded in 2016, is a cross-platform social game available on console, PC, mobile, and VR. It attracted 150 million players and raised close to $300m across six funding rounds, reaching a peak valuation of $3.5B in 2021. The platform laid off approximately half its staff in Aug’25, before reporting its first $1m creator revenue quarter in Sep’25.

South Korea-based games developer Shift Up (KRX: 462870) has acquired Japan-based games studio Unbound for an undisclosed sum. Unbound was formed by Shinji Mikami in 2022 and began operations in 2023. Mikami served as director of Resident Evil and The Evil Within, and executive producer on Devil May Cry and Ōkami. The studio counted 53 employees as of Apr’25, with plans to scale to 150. Shift Up will directly handle the publishing of Unbound’s upcoming titles.

Romania-based games developer service provider Quantic Lab has completed a management buyout, with founder and CEO Stefan Seicarescu reacquiring the company from Embracer Group for an undisclosed sum, effective Apr 1, 2026. Embracer had acquired 95% of Quantic Lab in Nov’20. Founded in 2006, Quantic Lab provides testing, UX, and localization services across game releases, including The Witcher 3: Wild Hunt and Cities: Skylines, and maintains long-term client partnerships with CD Projekt, Ubisoft, Plaion, and Paradox Interactive. The studio will maintain its collaboration with Embracer Group companies following the transition.

VENTURE FINANCING

[RUMOR] US-based PC & Console games developer Crystal Dynamics is reportedly developing a Lord of the Rings open-world third-person action RPG, having received ~$100m in funding from the Abu Dhabi Investment Office (ADIO), according to Insider Gaming. The game is built in Unreal Engine and is designed to compete with Hogwarts Legacy. Crystal Dynamics is also reportedly developing Tomb Raider: Catalyst and Tomb Raider: Legacy of Atlantis. Embracer Group has held the game adaptation rights to the Lord of the Rings IP since 2022 and has since licensed them to multiple developers, including the 2023 release The Lord of the Rings: Gollum.

US-based on-chain chess platform Pixie Chess has raised $5.2m in Seed funding led by Paradigm, with participation from Seed Club and angel investors. Pixie Chess emerged from Paradigm’s EIR program and blends classic chess with TCG-style mechanics and crypto-native economics. Players collect chess pieces as NFTs with unique special abilities via daily ETH auctions, compete in wagered matches, and enter tournaments whose prize pools are funded directly by piece sale revenue. The platform launched with $50k in tournament prizes.

Cyprus-based mobile games developer Burny Games has received an undisclosed strategic investment from Ukrainian entrepreneur Maksym Krippa, formalizing his co-ownership stake following a partnership that began at the studio’s founding in 2022. Burny Games specializes in mobile puzzle titles and has grown to over 140 employees. As of Mar’26, the studio has recorded 65 million downloads across approximately ten titles, with five generating consistent commercial performance. Its flagship title, Colorwood Words, topped the Ukrainian App Store in 2025, surpassing Roblox. In 2025, Burny Games launched its own publishing division and released its first co-published title with Portugal-based Infiniti Games.

China-based AI games developer and publisher Gamercury AI has raised an undisclosed sum with participation from Shanghai Angel Club, according to 36Kr. The company had previously closed two rounds, the first with undisclosed investors and the second led by LinkSure. The funds will support the development of a narrative AI world engine, an AI game content platform, and the global expansion of its AI game products. The studio’s flagship title, Detective Sherlock: Shadow Stalker, an AI-driven mystery game for PC & Console, is set for release on Steam in Apr’26.

Moldova-based PC & Console games developer Paparuda Studio has raised $229k (€210k) to develop its first commercial game within 12 to 15 months. Founded in 2026 by Victor Marchitan, Artiom Snegur, and Alex Culeva, the studio focuses on indie and AA cooperative gameplay titles. Following the investment, the firm plans to increase its staff from five to approximately 20 specialists. The expansion includes new hires in programming, game design, and digital art (2D/3D).

PUBLIC OFFERINGS

China-based AR glasses developer XREAL has filed a listing application with the Hong Kong Stock Exchange (HKEx), aiming to be the first AR glasses company to list on the exchange. XREAL reported revenue of ~$72m (RMB 516m) in 2025, up from ~$56m (RMB 394m) in 2024, while narrowing its net loss to ~$63m (RMB 456m) from ~$100m (RMB 708m) year-over-year. Founded in Jan’17 by CEO Xu Chi, a former NVIDIA and Magic Leap engineer, the company distributes AR glasses across 40+ countries and has ranked first in global AR glasses sales revenue each year from 2022 to 2025, according to iResearch. XREAL’s latest valuation reached $833m following a Series D in 2024, with Alibaba (6.68%), Kuaishou (6.66%), and Shunwei Capital (4.33%) among its major shareholders. Proceeds will fund R&D investment, global brand building, new production infrastructure, and sales network expansion. XREAL’s 2026 product roadmap includes the ROG XREAL R1, co-developed with ASUS ROG, and Project Aura, built on Google‘s Android XR platform.