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BTS’ agency HYBE joins takeover bid for Korea’s SM

BTS’ agency HYBE joins takeover bid for Korea’s SM

  • BTS manager HYBE acquires 14.8% stake in SM Entertainment
  • HYBE acquires up to 25% stake with tender offer of 120,000 won/shr
  • SM shares jump 15% to record high of 113,500 won

SEOUL, Feb 10 (Reuters) – HYBE (352820.KS)The manager of South Korean boy group BTS announced on Friday a deal to acquire a 14.8% stake in rival SM Entertainment (041510.KQ) from its founder, fueling a corporate feud between the godfather of K-pop and alienated management.

HYBE also announced a tender offer for minority-owned SM shares, seeking to acquire up to 25% of rival institutions, taking SM’s stake to a record high of 16%.

A few days ago, SM Entertainment announced the sale of shares to Kakao Corp for 217 billion won ($172 million). (035720.KS) On Tuesday, it gave the country’s largest mobile operator a 9.05 percent stake and made SM an ally against founder and largest shareholder Lee Soo Man.

Lee controls 18.4% of the company, which bears his initials, and has been at loggerheads with current management in recent years over its business dealings with his private company.

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The former SM head producer hasn’t held any formal role with SM for more than a decade, but he’s also reportedly been heavily influential in managing and training SM’s K-pop acts.

HYBE’s takeover plan drew sharp criticism from SM Entertainment.

“We oppose all aggressive outside acquisitions, including HYBE,” SM said in a statement.

HYBE said it is seeking stewardship to strengthen its position in the K-pop industry.

“(We) fully agree with Lee’s strategic initiatives, including the metaverse, multi-label system, and sustainable vision campaign,” HYBE chairman Bang Si-Hyuk said in a statement.

HYBE acquired a 14.8 percent stake from Lee for 423 billion won and a tender offer price of 120,000 won per share, a 22 percent premium to SM Entertainment’s closing price on Thursday. SM shares rose 16 percent to 114,200 won.

Local activist fund Align Partners Capital Management (APCM), which owns about 1 percent of SM, said the bid was too low and should be raised given SM’s growth potential.

Lee and HYBE appear to have joined forces as he desperately needs to find an ally to counter the alliance between the board, Kakao and APCM, NH Investment & Securities said in a report.

Lee on Wednesday applied for a temporary injunction to block the sale of shares to Kakao, saying the issuance of new shares to Kakao was “illegal” and aimed at weakening the position of the current largest shareholder.

Kakao, which declined to comment on Friday, said the deal with SM would help it develop joint projects including global K-pop auditions.

HYBE is the agency that manages K-pop supergroup BTS. SM is home to other popular K-pop artists including NCT and Aespa.

For years, the K-pop industry has been dominated by the Big Three – SM, JYP (035900.KQ) and YG Entertainment (122870.KQ) – until K-pop boy band BTS rose to fame and made HYBE bigger than the other three.

But all seven members of BTS are expected to begin military service in the next few years, starting with Jin, the oldest member, who enlisted last December. The septet will return in full in 2025.

Music critic Kim Do Heon said that with the team on hiatus, SM Entertainment’s broad portfolio will bring commercial benefits to HYBE.

“HYBE has become a behemoth, but its weakness is that it has no legacy. SM is a company that has been through the history of K-pop and will bring a legacy to HYBE,” said Kim.

($1 = 1,264.5200 won)

Reporting by Hyunsu Yim; Editing by Tom Hogue and Miyoung Kim

Our standards: Thomson Reuters Trust Principles.

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