SM Entertainment CFO slams HYBE takeover as hostile, destructive

SM Entertainment's Chief Financial Officer Jang Cheol-hyuk released a statement through SM Town's YouTube channel on Monday morning. [SM ENTERTAINMENT]

HYBE's "hostile takeover" of SM Entertainment will harm shareholder value and also the entire K-pop market, SM Entertainment's chief financial officer said Monday.

The company also argued that the takeover will ruin the company's "SM 3.0" project, which involves liberating the business from the influence of Lee Soo-man, the company's founder and once the largest shareholder.

“As soon as the new system of SM 3.0 started on Feb. 3, the largest shareholder sold off his shares and attempted a acquisition by our competitor,” Chief Financial Officer Jang Cheol-hyuk said in a YouTube video uploaded on Monday morning.

The video came out before the entertainment company announced its fourth quarter earnings for 2022 on the following afternoon.

“This is a move which ignores SM’s value and pride in the midst of our challenge to leap to the global No.1 in entertainment.”

While HYBE, the acquirer mentioned by the CFO, promises to ensure SM’s independence in management, Jang said it’s “a promise difficult to keep,” claiming that HYBE did not ask for any form of cooperation in relation to SM Entertainment data during the M&A process.

Jang said that SM’s merger with HYBE will hurt SM artists and the value of the company as HYBE artists and businesses will always come first.

“Moreover, the merger of SM and HYBE, the two K-pop powerhouses, will lead to monopolization of the industry as they have 66 percent of the entire market,” said Jang. “Based on third quarter earnings, the profit made from music by SM and HYBE account for 70 percent of the market, and incorporating concert profit, 89 percent of the market.

“This will hurt the diversity of K-pop industry,” Jang said.

HYBE said earlier this month that it will buy 14.8 percent of SM Entertainment from founder Lee Soo-man and 25 percent in a tender offer at 120,000 won ($92.58) per share, ultimately aiming for a 40-percent stake in the K-pop agency.

HYBE is up against Kakao, which will buy 9.05 percent of SM Entertainment. The deal was challenged by founder Lee, who filed for an injunction to have the deal suspended.

Specific details of the deal with Kakao and further details of the SM 3.0 project will be announced soon, according to Jang.

SM Entertainment's net profit fell 33.1 percent to 89.1 billion won last year, below the market consensus of 92.5 billion won compiled by FnGuide.

The company cited the base effect due to the sale of SM Entertainment Studio Center in 2021.

Operating profit jumped 38.5 percent to 93.5 billion won, beating the market expectations of 87.3 billion won. Operating profit increased due to overall growth from all businesses, the company said.

Revenue shot up 20.9 percent to 848.4 billion won, beating analyst expectations of 816.6 billion won.

Fourth quarter net profit plummeted 69 percent to 9 billion won compared to the year before, far below the market consensus of 15.9 billion won. The base effect was blamed, as the sale was in the fourth quarter.

Quarterly revenue increased 7.7 percent to 256.4 billion won, beating the 227-billion-won market consensus.

SM Entertainment credits a large number of concerts and fan meet-and-greets as Covid-19 pandemic subsided, such as by artists NCT 127, NCT Dream and Super Junior.

Artists slated for return to the K-pop scene in the first half of this year include SHINee’s Onew and EXO’s Kai in March; Taeyeon, NCT units and aespa in April; and SHINee and solo activities of NCT in May.

aespa and SHINee are slated to release full-length albums. For aespa, it’s the group’s first-ever studio album.

The first hearing for the Kakao-SM deal court injunction will be held Wednesday.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]