Shares of SM Entertainment surged 19% on Friday after the announcement

SM Entertainment chief producer Lee Soo-man [SM ENTERTAINMENT]

SM Entertainment shares soar 19 On Friday, the South Korean pop music company announced Thursday that it may cut ties with the music production company 100% owned by head producer Lee Soo-man.

The K-pop agency, South Korea’s third-largest by market value, said on Thursday it was seeking to terminate its contract with Lee’s wholly-owned music production company Like Planning by the end of the year. SM, home to K-pop groups NCT, Red Velvet and aespa, has a market value of 1.8 trillion won ($1.3 billion), second only to BTS’s agency HYBE and Stray Kids’ agency JYP Entertainment.

Like Planning, founded in 1997, is a music production and consulting company that has been earning 6% of its revenue from SM Entertainment for providing musical insights to SM artists’ music production.

Signed with SM Entertainment for 20 years and paid 11.4 billion won in the first half of this year. The ongoing contract will run until December 2023 and will automatically renew if there is no objection.

The early termination of the contract was due to an official shareholder letter from Align Partners Capital Management, which owns 1.1% of SM Entertainment. Since earlier this year, the investment firm has criticized the companies’ relationship for “damaging shareholder value” and has asked the agency to sever ties to Like Holdings.

KB Asset Management, which holds a 5.1% stake in SM Entertainment, called for the two companies to merge in 2019. SM Entertainment refused, saying, “Like Planning is an unincorporated business run by Lee Soo Man, so it cannot be acquired.”

“The partnership with Like Planning is expected to boost SM Entertainment’s operating profit by 60 percent,” said an Align Partners spokesman. “We expect this move will give SM Entertainment the push it needs to move away from an individual-oriented structure towards a more stable and sustainable structure.”

SM Entertainment closes at 76,500 won on Friday. It closed at 64,500 won on Thursday.

Author: Yoon So-yeon [yoon.soyeon@joongang.co.kr]