Shares of Nexon Games Co., the game-developing studio under Nexon Co., surged on Friday morning after a Bloomberg report on Chinese IT giant Tencent Holdings Ltd.’s review of a deal for South Korea’s largest game publisher, valued at $15 billion.
The Shenzhen-based company is said to have reached out to the family of Nexon’s late founder Kim Jung-ju to discuss the possibility of acquiring the Korean gaming developer and publisher to bolster its gaming operations, the US-based news outlet reported on Thursday, citing people with knowledge of the matter.
Bloomberg added that Kim’s family has been discussing the matter with advisors and looking into options.
The news lifted Tokyo-listed Nexon shares by 10% on Friday morning, while its game-developing unit, Nexon Games, listed on Korea’s junior Kosdaq market, jumped as much as 11%.
Nexon declined to comment on Bloomberg’s report regarding the potential deal with Tencent in response to media requests for confirmation. Tencent also declined to comment.
TENCENT’S RENEWED PUSH INTO KOREA
If confirmed, it would mark the Chinese IT giant’s second attempt to take over the Korean gaming giant.
In 2019, Nexon’s late founder Kim offered to sell his entire stake in NXC Corp., the game developer’s holding company, and Tencent initially considered joining KKR, MBK Partners and Korean gaming rival Netmarble Corp. in the bid.
But the Chinese company did not bid, and the deal was canceled due to a price gap between the bidders and the seller.
This year, Tencent has stepped up its efforts to enter the Korean market.
In late May, its online music and audio entertainment platform, Tencent Music Entertainment Group, became the second-largest shareholder of SM Entertainment Co. by acquiring HYBE Co.’s remaining 10% stake in the K-pop pioneer for 243.4 billion won ($178 million).
HUGE INHERITANCE TAX BURDEN
Details about the deal are not known, but Tencent is reportedly aiming to acquire the entire stake in Nexon, including those held by NXC and its wholly-owned investment arm NXMH BV, through a tender offer.
The wife and two daughters of Nexon’s late founder have inherited all his shares in the game developer’s holding company, NXC, after the founder’s unexpected death at the age of 54 in early 2022.
The late founder’s family now controls Nexon by holding a combined 67.6% stake in the gaming developer’s parent, NXC.
NXC and NXMH jointly hold a 44.4% stake in Nexon, which owns 100% of its Korean entity.
Kim’s bereaved family faced a massive inheritance tax obligation after the late founder’s stakes in the holding firm were handed over to them.
A few months after Kim’s death in 2022, a 4.57% stake of his NXC shares was transferred to his wife Yoo Jung-hyun, who served as the company’s auditor. She became the largest NXC shareholder with a 34% stake.
Their two daughters each inherited 30.78% of the company, bringing each of their ownership levels to 31.46%.
Kim’s family had to pay several trillion won in inheritance taxes on Kim’s assets estimated at over 10 trillion won, making it inevitable to sell part of their shares in Nexon to cover the tax.
They have avoided a large-scale stake sale so far but paid part of the taxes to the Korean government in shares, which could become a point of concern in a deal with Tencent, industry observers said.
Another hurdle in the potential sale would be rising concerns about the growing influence of Chinese capital in the Korean gaming industry.
Tencent already holds a 17% stake in Netmarble and 13% of Krafton Inc., the Korean publisher of global mega-hit “PlayerUnknown’s Battlegrounds” (PUBG).
If it takes over a controlling stake in Nexon, all of Korea’s top three gaming companies would fall under the influence of the Chinese IT giant.
In 1996, Nexon released the world’s first massively multiplayer online role-playing game, “The Kingdom of The Winds,” followed by other hit titles “MapleStory,” “Dungeon & Fighter” and “KartRide.”
It posted 260 billion won in net profit in the first three months of this year, with a revenue of 1.14 trillion won.
Its shares are listed in Tokyo, as are NXC shares.
By Jun-Ho Cha
chacha@hankyung.com
Sookyung Seo edited this article.
