The planned share sale of SM Entertainment Co. to internet behemoth Kakao Corp. was thwarted by a South Korean court, undermining the company’s preferred strategy and paving the way for SM to be acquired by BTS label Hybe Co.
In a regulatory filing on Friday, SM stated that the Seoul Eastern District Court had invalidated Kakao’s agreement to purchase 9% of SM in favor of SM founder Lee Soo-man.
Last month, SM agreed to make Kakao its second-largest shareholder by issuing new shares and convertible bonds to the messaging app provider, weakening Lee’s control over the business.
The agreement made between the board members of SM and Kakao, according to Lee’s attorneys, was intended to force Lee out of the organization. In order to support Hybe, a rival K-pop management company, in its effort to acquire more shares of SM and create a global powerhouse, he sold Hybe his 14.8% stake. Executives from SM have stated that they are committed to pursuing the Kakao partnership because it is a strategic one.
“In an interview conducted prior to the decision, SM Chief Financial Officer Daniel Jang stated that even if Kakao does not own a stake in SM, the company will continue to seek a partnership with Kakao if doing so will increase shareholder value. “Hybe doesn’t have enough money to purchase 100% of the stock, and if they aren’t going to do that, they shouldn’t be involved in management and shouldn’t be attempting to take over the board.
Hybe, the management company for Justin Bieber and K-pop sensation BTS, has won thanks to the court’s ruling. Its purchase of SM would strengthen its control of the K-pop market as it works to bring the genre into contact with a wider, more mainstream audience.
The fight for SM is still ongoing. On speculation that Kakao might fight back to obtain a controlling stake and possibly lead to another tender offer from Hybe, the company’s shares have continued to rise. SM previously disclosed plans to grow its international clientele through a joint Kakao-developed app that will be in direct competition with Hybe’s Weverse fan community app.
The two sides will debate once more on March 31 at the annual general shareholders’ meeting. Voting authority can be used by Hybe on behalf of founder Lee. In response, SM’s management promised to increase shareholder returns through its partnership with Kakao for the following three years in an effort to gain support from both individual and institutional shareholders.
“The environment is hostile. However, after the shareholders’ meeting, Hybe’s status as the company’s largest shareholder won’t change, according to SM’s Jang. He continued, “The best course of action for the company is still to pursue SM’s proposed vision with its selection of board members. “However, if working together with Hybe is beneficial to our shareholders, we should take it into account.