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 reaches ~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.