Court blocks Kakao purchase of SM Entertainment shares

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Court blocks Kakao purchase of SM Entertainment shares

Published: 03 Mar. 2023, 19:07 Updated: 06 Mar. 2023, 14:24

Kakao's office in Pangyo, Gyeonggi [YONHAP]

A court issued an injunction stopping SM Entertainment from selling 217.2 billion won ($167 million) of new shares to Kakao on Friday a month after SM Entertainment founder Lee Soo-man filed for the injunction.

The decision by Seoul’s Eastern District Court is a major win for the founder and HYBE, which together are seeking to block Kakao’s purchase of SM Entertainment shares.

Kakao was seeking to buy 9.05 percent of SM Entertainment and enter into a strategic alliance with the agency for music production and distribution.

The management and board of SM Entertainment said that Kakao’s businesses are well aligned with SM’s push to bring its artist-related content and intellectual property to digital platforms.

The founder claimed that the SM-Kakao deal gives Kakao unfair priority in distributing content and gaining new shares.

"In the ruling, the court denied the need to urgently raise cash and form a strategic alliance by stripping existing shareholders of the preemptive rights to acquire new shares and convertible bonds," said Yoon & Yang, a legal representative of the founder, in a statement.

The decision is also in favor of HYBE, presently the largest shareholder of the showbiz agency.

The agency behind BTS and NewJeans bought 14.8 percent of SM Entertainment, the agency of boy band NCT and girl group aespa, from founder Lee for 422.8 billion won ($323.4 million) last month.

In the meantime, the National Pension Service (NPS) sold half of its shares in SM Entertainment last month amid management disputes in the entertainment agency, it disclosed Friday.

NPS now owns 4.32 percent or 1.02 million shares of the agency, compared to the 8.96 percent, 2.13 million shares from August 2022.

NPS sold 295,435 shares on the same day Kakao announced that it is buying 9.05 percent of the newly-issued shares on Feb. 7 and sold another 321,772 shares on Feb. 9.

After HYBE announced its plans to purchase 14.8 percent of SM Entertainment’s shares from its founder Lee Soo-man on Feb. 10, NPS sold 240,993 shares on Feb. 13 and 246,313 shares on Feb. 21, after the stock price rose to over 120,000 won ($92).

SM Entertainment shares traded in the 50,000-won-to-60,000-won range back in August when the NPS purchased a fresh portion of SM Entertainment shares. But the shares rose to 90,100 won on Feb. 09 and further to 123,500 won on Feb. 21.

The NPS will have its voting rights for the 8.96 percent holding at this month's annual general meeting because the voting right representation at the meeting is based on the list of stocks owned in December last year.

BY PARK EUN-JEE, CHO YONG-JUN [park.eunjee@joongang.co.kr]