Aespa (Photo: MAMA)
Korean tech giant Kakao has gained the upper hand in the battle for control of K-pop agency SM Entertainment after HYBE Corp., the company behind music idols BTS, said on Sunday it had canceled its takeover bid.
SM is the second largest talent Korean music talent company and is behind music acts including Super M, Aespa, BoA and Red Velvet, Girls’ Generation, HOT, EXO, Super Junior, SHINee and NCT Dream.
HYBE said on Sunday that it will “discontinue the acquisition process (…) after observing that the market has shown signs of overheating due to competition with both Kakao and Kakao Entertainment,” something it said could “harm shareholder value.”
Kakao and HYBE had been locked in an increasingly bitter battle for control of SM since early February, when HYBE bought a nearly 15% stake in SM from K-pop pioneer Lee Soo-man. Lee is estranged from the company he founded.
SM immediately hit back with a plan to issue shares and convertible bonds that would have made Kakao and its subsidiary Kakao Entertainment SM’s second largest shareholder with a 9% stake.
This path was blocked when Lee sought and obtained an injunction preventing the issue.
But earlier this week, deep-pocketed Kakao fired back with an offer of KRW150,000 per stock to existing shareholders worth close to $1 billion for a 35% stake in SM. It easily trumped HYBE’s open market offer of KRW120,000 to buy an additional 25% of SM’s shares and drove SM’s share price to a new high of KRW147,800 at the close of trading on Friday.
HYBE said on Sunday that it had “discussed the matters with Kakao and reached an agreement to suspend the process of acquiring SM’s management rights. At the same time, the two companies agreed to cooperate on issues related to their platforms.”
In its own statement, Kakao said it will continue to buy SM shares until March 26 as planned under its tender offer.
Korean business media also reports that HYBE will no longer present candidates for SM’s board of directors at a shareholder meeting scheduled for March 30.
The moves appear to give Kakao management control at SM, leaving HYBE with an unspecified agreement to partner with a Kakao-controlled SM in “platforms” or online business. HYBE manages Weverse, the powerful fan platform used by BTS and other players.
Neither company’s statement addressed whether HYBE would retain or sell the 14.8%% stake in SM that was obtained from Lee. Nor whether it will follow up, as previously announced, with the purchase of Lee’s remaining 3.5 per cent.
SM’s current management had strongly opposed what it saw as a hostile takeover by its biggest rival. It had already outlined its own plans for restructuring, dubbed SM 3.0, centered on the establishment of more production centers, new labels and expanded use of its artists’ IP rights.
SM issued its own statement on Sunday welcoming the agreement between HYBE and Kakao. “We will push for the SM 3.0 strategies with speed and fulfill our future vision of becoming a global entertainment company centered on fans and shareholders,” it said.