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TOKYO — A court ruling in South Korea on Friday added to the chaos of K-pop’s biggest corporate shakeup in years: a roller-coaster battle for control of SM Entertainment, a former industry leader plagued by corporate governance issues , while rival HYBE is eager to take over control.
The Seoul Eastern District Court granted a temporary injunction preventing SM from issuing new shares, which South Korean tech giant Kakao has agreed to buy as part of a partnership agreement between the two companies.Court rules SM’s decision was made without shareholders’ consent, accepts SM founder’s argument Li Xiumanhe has been battling with SM’s management over the future of the company he founded in 1995.
The ruling marks a victory for HYBE, K-pop’s largest agency and home to boy bands BTSin recent weeks Obtained 14.8% equity Lee acquired SM shares and announced plans to control and reform SM’s management and board of directors. HYBE offered shareholders a premium to increase their stake to 40%, but the market price has since exceeded the offer price. SM’s management called HYBE’s takeover a “hostile takeover.”
In a statement after the ruling, HYBE thanked the court for its “proper” decision. “With this outcome, everything should now be back in place,” the company said.
In a statement from his lawyer, Lee said the decision “clearly confirms that SM’s current management’s resolution to issue new shares and convertible bonds is an illegal attempt to influence the company’s control and governance.” The lawyer added, “If SM’s current management Management will further attempt to commit illegal acts in the future, and we will firmly respond with appropriate legal action.”
A Kakao spokesman said late Friday that the company had no immediate comment but “plans to respond after internal discussions.” An SM spokesman could not immediately be reached.
Lee and the company he founded are widely regarded as trailblazers, developing K-pop’s visually driven performances and signature formulas of dance pop, and tirelessly knocking on doors overseas. But SM’s output has slowed in recent years, which management blames on a founder-led, single-line structure.
Co-CEO of SM Lee Sung SooThe nephew of the founder’s late wife has slammed the uncle with a barrage of allegations, ranging from using the artist’s music for personal gain to evading taxes through a Hong Kong-based paper company. Shareholders have also objected in recent years to ballooning producer fees that the founder charges through separate entities he owns.
As part of a broader partnership agreement, Kakao agreed in February to SM’s management to buy a 9.05% stake in SM. The messaging app and search engine company, which has successfully expanded into e-finance and music, intends to distribute SM’s music and related content on its platform. Kakao has also acquired several entertainment agencies in recent years, leading some, including HYBE, to believe that Kakao is trying to gain management control over SM. Both SM executives and Kakao have rejected the claim.
With the annual general meeting scheduled for March 31, SM and HYBE are expected to attract SM investors, including Korea’s National Pension Service, in the coming weeks.
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