SM Entertainment terminates contract with Kakao

SM Entertainment headquarters in Seongsu-dong, Seongdong-gu, eastern Seoul [YONHAP]

SM Entertainment announced on Monday that it has canceled its contract with Kakao and sold a substantial stake to the tech firm following a recent court ruling.

In the now-defunct agreement, SM offered Kakao 111.9 billion won ($86.2 million) worth of new shares and 105.2 billion won worth of convertible bonds, granting it a 9.05 percent stake.

The deal will make Kakao the second largest shareholder after HYBE which owns 15.78% of SM.

However, the Seoul Eastern District Court on Friday issued an injunction preventing SM from selling new shares worth 217.2 billion won to Kakao.

HYBE on Monday asked SM to prohibit any violations of the ban; terminate any form of contract related to the acquisition of new shares or convertible bonds; terminate the business contract with Kakao; and withdraw the list of candidates for the new board of directors submitted by Kakao.

HYBE emphasized: “If SM does not implement or violate the following measures, it will be willful malfeasance, that is, to waive or allow its rights to be deprived.”

HYBE asked SM board members to respond by Thursday.

As of 10:24 am, shares of SM Entertainment fell 0.31 percent to 128,800 won per share, HYBE rose 1.76 percent to 190,700 won and Kakao rose 3.11 percent to 62,900 won.

Text/Li Zailin [lee.jaelim@joongang.co.kr]