SM Entertainment rallies as takeover battle remains intense

Industry

Published: 15 Feb. 2023, 17:25

SM Entertainment rallies as takeover battle remains intense

SM Entertainment founder Lee Soo-man speaks to reporters in at Grand Hyatt Seoul on Tuesday. [YONHAP]

SM Entertainment shares continued to rally on Wednesday as the battle for the K-pop company remains intense.

The Kosdaq-listed agency’s share price soared as much as 9.50 percent on Wednesday to 127,900 won, up 39 percent since last Monday.

The agency’s market capitalization was in the Kosdaq top 10, hitting No. 9 Tuesday. It ranked seventh on Wednesday.

The market capitalization for SM Entertainment was once as high as No. 5 when it went public in 2000, but it was pushed out of the top 10 following the rise of game and pharmaceutical firms in 2014.

The rally has pushed SM Entertainment’s share price higher than the tender offer by HYBE made to individual investors last week.

HYBE, the label behind BTS and NewJeans, offered to buy 25 percent of SM Entertainment from individual shareholders at 120,000 won apiece.

It also agreed to buy the 14.8 percent owned by Lee Soo-man, the company's founder.

Kakao signed a deal with the SM Entertainment board to acquire 9.05 percent in the company last week through newly-issued shares. Lee filed an injunction, saying that it is illegal to sell new shares to a third party in a way that could influence control.

The rise of the SM Entertainment share is challenging HYBE’s effort to purchase stock from individual shareholders as the higher market price than its offer could encourage investors to unload shares in exchange trading.

Apart from the pricing, HYBE’s hurdles include the inconvenience of individual investors having to personally visit a designated broker to take part in the tender offer.

A capital gain tax is another obstacle for individual investors, as profit exceeding 2.5 million won are taxed 22 percent in a year.

“It’s too early to conclude that HYBE’s tender offer will fail since the offer stands until March 1st and the price jump could be temporary,” said Park Seong-guk, an analyst at Kyobo Securities. “The 120,000-won range could become the lower range of the stock if Kakao counter offers. But that isn’t likely at least until the ruling for the injunction comes out.”

HYBE and SM Entertainment will recommend new board members by Thursday.

“We’re reviewing the candidates on a diverse level,” HYBE said. “The finalists haven’t been confirmed.”

Four directors at SM Entertainment are facing the end of the term next month, according to local media reports.

SM Entertainment did not confirm.

BY JIN MIN-JI [jin.minji@joongang.co.kr]