Kakao seeks 35% of SM Entertainment to counter HYBE threat

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Kakao seeks 35% of SM Entertainment to counter HYBE threat

Kakao's office in Pangyo, Gyeonggi [YONHAP]

Kakao's office in Pangyo, Gyeonggi [YONHAP]

 
Kakao is seeking to up its ownership in SM Entertainment to 39.9 percent via a 150,000 won ($116) per share tender offer.
 
The move is the latest in a dramatic takeover battle pitting the tech company against HYBE for control of the talent agency, a battle that could change the course of K-pop history.  
 
On Tuesday, Kakao issued a tender offer for up to 35 percent of SM Entertainment shares. It already owns 4.9 percent of the company. The offer will be valid until March 26.
 
"We support Kakao's decision," SM Entertainment's board said in a statement.
 
Until the tender offer, HYBE had the upper had in the battle. The agency best known for creating BTS purchased 14.8 percent of SM Entertainment shares from Lee Soo-man, SM Entertainment's founder.
 
Lee still retains 3.65 percent stake and has a put option to sell the rest of his stake to HYBE.
 
On Friday, a court issued an injunction against Kakao's purchase of new shares and convertible bonds that would have added 9.05 percent to its ownership stake and left it as the second largest shareholder of the company.
 
While a tender offer by HYBE for SM Entertainment shares was a flop, it still has 15.78 percent of the company and is the largest shareholder.  
 
Kakao explains that it needs to increase its ownership of SM Entertainment in order to protect a wide-ranging business agreement it has with the agency. Last month, the two companies announced their desire to work together on the development of “SM 3.0,” which involves moving away from the influence of the founder.  
 
Under the deal, Kakao receives extensive distribution rights for SM Entertainment artists.  
 
“We formed a strategic partnership because we thought we were the best partners for each other to grow our competitive edge against global entertainment companies,” said Kakao in a statement Tuesday. "Kakao decided that it has no choice but to secure the position as the largest shareholder to stably maintain our partnership with SM Entertainment.” 
 
HYBE asked the SM Entertainment board to cancel the contract with Kakao to withdraw its list of candidates for the SM Entertainment board.
 
“It’s essential to guarantee freedom of creativity and autonomy in entertainment business,” Kakao said of its stake in SM Entertainment. “Kakao respects SM Entertainment’s unique tradition and identity and will guarantee autonomous management, continuation of artist independence in their activities.”
 
“Kakao is focusing on investing in a variety of technologies, such as artificial intelligence and metaverse. Kakao Entertainment possesses know-how on how to run and develop businesses related to intellectual property across all entertainment sectors, including music, story and media. When SM Entertainment’s global influence in music and artist intellectual property fuses with Kakao Entertainment’s expertise in the intellectual property businesses, we’ll be able to strengthen our global competitiveness by expanding our intellectual property businesses across a variety of sectors as well as in music.”
 
Following Kakao’s tender offer announcement, the SM Entertainment board released a statement to express its support for Kakao’s decision.
 
“We’ll push ahead with our ‘SM 3.0’ project with Kakao as we’d promised to SM Entertainment shareholders, employees, fans and artists, to promote becoming a shareholder-centered global entertainment company and strengthen our company value and policies focusing on shareholder returns.”
 
SM Entertainment rose 15.07 percent Tuesday to 149,700 won.  

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