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Monday, June 5, 2023

SM Entertainment deal: A takeover battle rages on over K-pop’s future

Hong Kong/Seoul (CNN) Kakao, one of South Korea’s top internet giants, has doubled down on efforts to rein in SM Entertainment, the iconic K-pop music institution.

The tech company announced Tuesday that it would seek to buy up to 35 percent of the music label, just days after a stake sale between the two companies was blocked by a South Korean court. If successful, it would own about 40% of the company.

According to a media report, Kakao and its entertainment arm launched a takeover bid totaling about 1.25 trillion won ($962 million). Regulatory filing. It plans to offer SM shareholders 150,000 won ($115) per share.This will be a significant premium what did they get Just last week, another Korean music agency, HYBE, is known for representing superstar boy band BTS.

If successful, it would also become Kakao SM’s largest shareholder, a position currently held by HYBE, K-pop’s top agency, thanks to BTS’ success.

Last week, HYBE offered investors 120,000 won ($92) per share in its own tender offer, hoping to acquire a further 25% stake in SM through the acquisition. On Monday, BTS revealed that its bid fell, adding only 0.98 percent to its stake.

HYBE now owns 15.8% of SM, Regulatory filing shown, consisting of the shares acquired through the tender offer and its previous acquisition of 14.8% of the shares separate transaction last month.

The latest surprise move by Kakao, one of the country’s largest tech companies, adds another layer to an already complicated shareholder battle over SM Entertainment.


SM was founded by legendary music producer Lee Soo Man, widely known in South Korea as the “Godfather of K-pop”. The agency is known for representing popular artists such as NCT 127, EXO, BoA and Girls’ Generation.

More recently, Lee has been wrestling with his company’s management on several fronts — including how much of the company should be sold to Kakao or HYBE.

HYBE entered the fray last month when Lee Sell Most of his personal shares were sold to the agency for 422.8 billion won ($334.5 million). He retained a 3.65 percent stake, according to a regulatory filing Monday.

HYBE’s efforts to increase its overall stake to 40% in recent weeks have sparked a shocking public spat with SM’s leadership, which has accused the former of attempting a hostile takeover and eventual monopoly. HYBE dismissed those concerns, noting that its initial stake was purchased with Lee’s “consent”.

In December, South Korean band NCT 127 participated in a music festival held at Jamsil Arena in Seoul. The artist is represented by SM Entertainment and is currently in the midst of multiple shareholder disputes.

Meanwhile, Lee has also been at odds with SM management over his desire to work more closely with Kakao.

The internet giant is ubiquitous in South Korea, best known for its popular messaging service Kakao Talk and music streaming platform Melon, which has been likened to South Korea’s Spotify.

Kakao and its Kakao Entertainment unit now own a 4.9 percent stake in SM, the company told CNN in a statement Tuesday.

Last month, the company explain It has agreed to buy a 9% stake in SM through the purchase of new shares and convertible bonds. But Lee blocked the deal with a court injunction.

In a statement shared with CNN at the time, his law firm Yoon & Yang said Lee and SM were “going through a business management dispute” and that “SM’s board of directors issued new shares and convertible bonds to third parties.” , while such disputes are still ongoing.

Lee’s legal representative told CNN in a statement that on Friday, the Seoul Eastern District Court accepted Lee’s request for an injunction preventing SM Entertainment from selling new shares or issuing convertible bonds to Kakao.

Kakao’s bet

Still, Kakao is pressing ahead, inviting SM shareholders to accept its takeover offer, which closes on March 26.

Kakao hopes to form a strategic business partnership with SM, “judged by each other as the best partner” to compete with global entertainment conglomerates.

Now, those plans are “under threat,” leaving Kakao with no choice but to secure SM’s largest shareholder status in order to “maintain a stable partnership,” the tech company told CNN in a statement.

Kakao investors appear wary of the proposal. Its shares closed down 3 percent in Seoul on Tuesday, while shares of SM surged 15 percent.

The Kakao office building in Pangyo-gu, Seongnam, South Korea, in October.

For its part, SM said it wanted to continue working with Kakao because it “respects [for] Management is currently grappling with factors that are hindering SM Entertainment’s growth. “

“Unlike HYBE, which tries to control SM’s board of directors through hostile means [acquisition]Kakao respects SM’s unique heritage and identity, and will ensure the company’s independent operations, as well as the continued activities of SM artists,” it added.

Lee did not immediately respond to a request for comment on Kakao’s tender offer on Tuesday, while HYBE did not immediately respond to a request for comment on its next steps.

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