Court blocks SM Entertainment's planned share sale to Kakao
SM Entertainment founder Lee Soo-man
A Seoul court on Friday blocked K-pop agency SM Entertainment's planned issuance of new shares and convertible bonds to an entertainment arm of tech giant Kakao.
The Seoul Eastern District Court granted an injunction filed by SM's estranged founder Lee Soo-man, barring Kakao Entertainment's deal to become the second-largest shareholder.
The decision marks a victory for Hybe, the K-pop powerhouse behind global superstar BTS, in its ongoing move to take over SM Entertainment.
Hybe earlier became the largest shareholder of its industry rival SM Entertainment on Feb. 22 by acquiring a 14.8 percent stake from Lee, who had an 18.46 percent share.
Hybe seeks to further buy a 25-percent stake from other shareholders to ultimately build a 40-percent stake by the annual shareholders meeting slated for March 31.
In response, SM Entertainment's board led by Lee's nephew struck the deal with Kakao Entertainment to issue new shares through a third-party allotment.
The deal, if closed, would allow Kakao to have a 9.05-percent stake in SM Entertainment and become the second-largest shareholder.
Lee's lawyers have claimed the issuance of new shares and convertible bonds should be carried out for management purposes and should not hurt ordinary shareholders by undermining the value of their assets.
SM Entertainment's current management, meanwhile, said Lee had colluded with industry rival Hybe through a share purchase agreement for personal benefit.
On Friday, the court accepted most of Lee's arguments, saying SM Entertainment does not have a compelling need for financing and the deal could undermine the value of assets held by Lee and other existing shareholders.
Also, the court ruled Lee ― who still holds a 3.65-percent stake ― has a legitimate need to file for an injunction because the preemptive right is given to each of the shareholders.
Lee is considered a K-pop pioneer who has masterminded various artists dating back to the early 2000s. Before BTS became a global superstar, SM Entertainment was one of the country's top three K-pop agencies, with big-name K-pop acts, like EXO, Red Velvet and NCT, under its belt.
Following the ruling, Lee said he has intended to leave SM Entertainment to the best player in the industry, which was Hybe for him.
"I am heading to the second half of my life after completing the first half as the head of SM," Lee said in a letter to SM executives and fans.
Yoon Yang, a law firm representing Lee, welcomed the court's decision, saying the decision to issue new shares and convertible bonds was made in an unlawful attempt to influence the company's control and governance.
SM and Hybe accounted for about 70 percent of the domestic music revenue and 89 percent in the performance market in the third quarter of 2022, according to SM. (Yonhap)