Rhetoric upped, details light, in Kakao vs. HYBE over SM

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Rhetoric upped, details light, in Kakao vs. HYBE over SM

Kakao Entertainment said it would take a more active stance against HYBE's claims that partnership between Kakao and SM Entertainment is unequal, its co-CEO kim Sung-soo announced in a statement Monday. [KAKAO][KAKAO]

Kakao Entertainment said it would take a more active stance against HYBE's claims that partnership between Kakao and SM Entertainment is unequal, its co-CEO kim Sung-soo announced in a statement Monday. [KAKAO][KAKAO]

 
Kakao Entertainment is turning up the heat in the complex battle for control of SM Entertainment, although exactly what it will be doing to counter an increasingly aggressive HYBE remains vague and ill-defined.
 
“A full-scale revision of our previous strategy is inevitable,” said Kakao Entertainment co-CEO Kim Sung-soo in a statement.
 
Kakao is set to buy 9.05 percent of SM Entertainment, with the deal closing on March 6. It is also becoming increasingly intertwined with the company, forming a joint venture and gaining exclusive rights over international distribution.
 
These efforts are being countered by HYBE, which has bought 14.8 percent of SM Entertainment from Lee Soo-man, the company's founder and still 3.65 percent owner. It also made a tender offer to buy another 25 percent of the company.
 
Lee challenged the SM Entertainment-Kakao deal as illegal and filed for an injunction. The first hearing was held on Wednesday, and more information was requested from both sides. No date was set for the ruling.
 
In recent days, the battle has been defined by a war of words between the two sides. HYBE claims that the SM-Kakao partnership is an unfair contract that favors Kakao over other shareholders, giving the latter priority in purchasing new shares.
 
Kim said that the maneuver is perfectly legal and vowed to amp up efforts in the war for SM Entertainment, without specifying what it plans to do.  
 
“The company can no longer remain silent in the midst of this situation where the existence of Kakao-SM partnership is being threatened and fundamentally hurts the future development of the three companies,” Kim said, referring to SM Entertainment, Kakao and Kakao Entertainment.
 
Kim argues that the deal with SM Entertainment is a routine contract with run-of-the-mill clauses that allow a strategic partner to buy more shares. This protects strategic investors without harming the rights and interests of other shareholders, he adds.  
 
He also argues that Kakao is still an outsider and does not have the power to order the issuing of new SM Entertainment shares, and insists that HYBE's claims that it can steadily acquire more of SM Entertainment is simply not valid.
 
The co-CEO went on to say that he is not happy that HYBE is no longer open to working with Kakao and with the company's resistance to Kakao's plans for SM Entertainment.  
 
“Although HYBE had initially said on Feb. 21 that it’s open to working with Kakao, it reversed its stance to demand that all conditions agreed upon between Kakao and SM be withdrawn on Feb. 24. It’s also denying all of the goals and directions set forth by previous SM management by recommending only of HYBE-related people and candidates for the board,” Kim said.  
 
On Monday, Kakao confirmed that Kakao Entertainment established a corporation in the United States last December, and local media reports that this company will be jointly owned by Kakao Entertainment and SM Entertainment.
 
The joint venture will manage artists in the Americas.
 
Joseph Chang, global strategy officer and vice president at Kakao Entertainment, will also be made CEO of the American unit.
 
Before joining Kakao Entertainment, Chang worked at Sony Music Entertainment Korea as CEO and managing director. He also made Billboard’s list of International Power Players in 2021.
 
Chang is a candidate to be an SM Entertainment non-executive director.
 
A Kakao spokesperson confirmed the news but did not offer any details about the new unit.
 
Kakao Entertainment has been pursuing the North American market to increase the number of webtoon and web novel viewers in the region. In 2021, it bought Tapas Media and Radish Media and merged the U.S. properties into Tapas Entertainment, a webtoon and web novel-based service, in 2022.
 
In January, Kakao Entertainment sold 10.21 percent of its shares to Saudi Arabia and Singapore sovereign wealth funds. Kakao had said in a statement that it plans to use the funds to pursue the expansion of its global activities.  
 
 

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