Dunamu and Naver Merger: Legal Challenges Ahead
Dunamu, which manages the Upbit cryptocurrency exchange in South Korea, faces multiple legal challenges that could impede its potential merger with Naver, a leading tech conglomerate often referred to as South Korea’s equivalent of Google. This merger, which could create a dominant entity in the crypto-tech landscape, is generating heightened interest within both crypto and technology circles.
According to a report by Hanguk Kyungjae, there are five notable legal issues that Dunamu needs to address to advance their merger discussions with Naver, which currently commands around 72% of the country’s crypto market.
Legal Issues Facing the Merger
1. Regulations on Traditional Finance
South Korean regulations established in late 2017 effectively prevent traditional financial institutions from engaging in cryptocurrency activities. Although these rules have not been codified into national law, they guide the finance sector and limit banks from offering crypto services. Naver is looking to merge its financial arm, Naver Financial, categorized under the Electronic Financial Transactions Act, with Dunamu, which means these regulatory guidelines would need to be revised for the merger to proceed as planned.
2. Uncertainty in Stablecoin Legislation
A significant goal for the proposed merger may involve creating won-pegged stablecoins to enhance the payment infrastructure. The ambition is for Naver Pay, Naver’s digital payment platform, to utilize a stablecoin linked to the South Korean won, which could considerably broaden its market reach. However, serious disagreements persist among regulators and lawmakers about stablecoin legislation, despite President Lee Jae-myung advocating for the legalization of these tokens. The Bank of Korea is hesitant, insisting that only banks should have the authority to issue stablecoins, creating a potential roadblock for the merger if these concerns persist.
3. Potential Conflicts of Interest
In the event that Naver and Dunamu launch a stablecoin, Upbit may encounter difficulties in listing this token due to prohibitions under the Virtual Assets Act. This law bans exchanges from dealing in tokens that they or their affiliates have generated, potentially complicating the merger’s success. While the firms could seek alternatives for trading on other platforms, it might significantly dilute the merger’s effectiveness.
4. Challenges Related to Stock Market Listings
Should the merger occur, Naver might consider restructuring its financial division and listing on NASDAQ along with Dunamu. The current legal environment has shifted to enhance protections for minority shareholders, mandating that they receive fair offers during mergers or IPOs. Experts suggest that failing to provide these shareholders with equitable compensation could trigger litigation, complicating Naver’s stock market ambitions.
5. Governance and Ownership Issues
Speculation surrounds the future governance structure with Naver’s Chairman, Lee Hae-jin, potentially grooming Dunamu’s Chairman, Song Chi-hyung, as a successor. This maneuver could see Song become one of Naver’s principal stakeholders, currently owning over 25% of Dunamu. However, regulations would necessitate compliance with various governance protocols before such transitions are feasible, complicating matters further.
As the merger talks progress, Dunamu and Naver must navigate these intricate legal channels to successfully establish what could be one of East Asia’s largest mergers in the tech industry in recent times.
