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by Hyunsu Yim
SEOUL (Reuters) – South Korean K-pop pioneer SM Entertainment Co Ltd is poised to fall under the control of social media giant Kakao Corp after HYBE Co Ltd, which represents boy band BTS, ceded control on Sunday.
Why is SM attractive?
Founded in 1995 by South Korean folk singer Lee Soo Man with a mere 50 million won ($37,600) in capital, SM was a trailblazer in the K-pop industry ahead of two rival companies that would later emerge – JYP Entertainment and YG Entertainment. .
For more than two decades, the K-pop industry was dominated by trios until BTS rose to global fame in recent years, with their agency HYBE becoming the country’s biggest music label.
SM, named after Lee’s initials, laid the groundwork for K-pop’s global success, including SM artiste BoA’s first breakthrough on the Japanese music charts in 2002.
After BoA’s success in Japan, other K-pop groups began to move overseas in earnest, starting in Asia and then expanding to the US and Western Europe.
SM has popular K-pop groups such as Girls’ Generation, HOT, EXO, Red Velvet, Super Junior, SHINee, NCT Dream, and Aespa.
It is South Korea’s second-largest entertainment conglomerate by market capitalization at $2.8 billion, behind HYBE at $5.5 billion.
Discord with “Emperor Li”‘s family
70-year-old legend Lee Jae-yong, considered the “godfather” of K-pop, hasn’t held any official title at SM for years.
Instead, he wielded influence through a private company he founded to help the industry expand globally and provide management and training services.
Activist fund Align Partners, which owns about 1% of SM, began last year asking its management team, led by Lee’s nephew and protégé Lee Sung-soo, to sever business ties with the founder, citing governance issues and payments to Lee’s private company. high cost.
Friction between SM and Lee surfaced last month when his nephew called the founder the “emperor of the SM empire” in a YouTube video and criticized him for demanding unfavorable revenue-sharing deals and undermining SM’s governance.
The 43-year-old nephew, who has worked at SM for 17 years, said he informed Lee on Jan. 17 that from now on he would make decisions as CEO rather than as a “rubber stamp”.
In response, Lee said he was “hurt” by his nephew’s words.
takeover battle
Seeking to undercut the founder’s influence, SM’s management last month announced a $173 million stake sale in Kakao that would make the tech conglomerate its second-biggest shareholder after Lee, who remains the biggest shareholder, Holds 18% of the shares.
Lee filed an injunction request to block the court-approved deal and sold a 15 percent stake in SM to rival agency HYBE, sparking a takeover battle.
HYBE launched a public tender offer for an additional 25% stake, but received little support from shareholders.
Kakao, which owns about 5 percent of SM, has upped the ante this month, launching a tender offer for as much as 1.25 trillion won ($946.8 million) for as much as 35 percent.
HYBE said on Sunday its decision to halt its takeover bid came after the stock market showed “signs of competition-induced overheating”.
How does this acquisition help KAKAO?
SM is seen as a rare, high-quality asset due to management disputes and Lee’s decision to divest his stake.
Kakao, South Korea’s most popular social media platform, is aggressively entering the entertainment industry and already owns a smaller K-pop agency, Starship Entertainment.
In January, Kakao Entertainment gave its bid for SM more firepower by announcing a 1.2 trillion won ($966.27 million) investment from Singapore’s GIC and Saudi Arabia’s Public Investment Fund.
Analysts said control of SM would support Kakao Entertainment’s IPO plans.
($1 = 1,327.9200 won)
(Reporting by Hyunsu Yim; Editing by Miyoung Kim and Jamie Freed)
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