Internet behemoth Kakao and its affiliate Kakao Entertainment made a $966.27 million (USD) offer to purchase up to 35% of the stock in SM Entertainment. The deal would make Kakao the largest shareholder in the K-pop company at 40%.
The cash-rich tech company has been attempting to purchase a majority stake in SM Entertainment in order to prevent HYBE from doing so.
Kakao stated that it will, “continue its tender offer bid until the 26th [of March] to secure a further stake and work on the details of business cooperation between HYBE and SM.”
Hybe, a South Korean entertainment conglomerate and the company that backs the boy band BTS, has abandoned its attempt to acquire SM Entertainment.
Kakao was brought in by SM’s management in an effort to regain control after HYBE’s hostile takeover was claimed to have damaged the potential of the K-pop industry and created a monopoly.
In a statement, Hybe stated that it decided to put an end to its acquisition of SM “after observing that the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment,” adding that continuing with the deal could have a “potential negative impact on Hybe’s shareholder value.”
HYBE’s Hasty Move Explained
HYBE became the largest shareholder in the SM last month after agreeing to buy a 14.8% interest from SM Entertainment founder Lee Soo Man. The agreement was a response to Kakao’s attempt to acquire a 9.05 percent stake in SM Entertainment through the purchase of newly issued shares and convertible bonds.
It has now been verified that the outcome of the agreement between HYBE and Kakao over their dispute over the management rights and control of SM Entertainment is HYBE’s withdrawal from the acquisition.
HYBE stated on Sunday that it decided to halt the acquisition offer after noticing “signs of overheating due to competition” on the stock market.
Lee sold a 15% interest in SM to rival agency HYBE and requested an injunction to prevent the purchase from going through, which resulted in a takeover conflict.
In an attempt to acquire a further 25% of the company, HYBE conducted a public tender offer, but received little support from shareholders.
Kakao Takes Charge
Because of the management disagreement and Lee’s intention to sell his stake, SM is seen as a valuable asset that is up for grabs.
South Korea’s most widely used social media network, Kakao, is aggressively advancing into the entertainment sector where it already owns a minor K-pop firm called Starship Entertainment.
Kakao Entertainment stated in January that Singapore’s GIC and Saudi Arabia’s Public Investment Fund would contribute 1.2 trillion won (US$966.27 million), providing it more ammunition for the SM bid.
Why SM is Highly Coveted
With a market value of US$2.8 billion, SM is South Korea’s second-largest entertainment company behind HYBE, which is valued at US$5.5 billion.
The K-pop industry was pioneered by SM, which was established in 1995 by South Korean folk singer Lee Soo-man with just 50 million won (US$37,600) in funding, before two competing companies, JYP Entertainment and YG Entertainment, that later emerged.
Lee’s record label, SM, is known for laying the foundation for K-international pop’s success, including the genre’s initial breakthrough in 2002 when SM musician BoA topped Japan’s music charts.
With BoA’s success in Japan, more South Korean pop groups started to actively perform abroad, first in Asia and then in the US and Western Europe.
Girls’ Generation, H.O.T., EXO, Red Velvet, Super Junior, SHINee, NCT Dream, and Aespa are just a few of the well-known K-pop bands that call SM home.
SM Entertainment Confirms Partnership With Kakao — Leaps Towards SM 3.0 As Plannedhttps://t.co/o1Fq9sPFaM
— Koreaboo (@Koreaboo) March 12, 2023
Kakao & SM Lay The Groundwork
The management of SM announced that a US$173 million share sale agreement with Kakao last month was an effort to lessen their founder’s power. Under the agreement, the IT company would become SM’s second-largest shareholder behind Lee, who remained the largest with an 18% interest.
The stakes were raised this month when Kakao, which owns about 5% of SM, launched a tender offer at a higher price to buy up to 35% for 1.25 trillion won (US$946.80 million).
SM’s statement is as follows, “Unlike HYBE, which seeks to take control of SM’s board of directors through a hostile [acquisition], Kakao respects SM’s unique tradition and identity, and will ensure the company’s independent operation, as well as SM artists’ continuous activities,”
Kakao Corp. creates portals and other elements of online information services. Advertising Platform and Contents Platform are its two main business divisions. Communication, media, content, games, lifestyle, fintech, and search are among the services it provides. The company’s headquarters are in Jeju-si, South Korea, and it was established on February 16, 1995.