CJ ENM to have W1.5 tril. ready for Endeavor, SM acquisitions

CJ Group Chairman Lee Jay-hyun speaks of the company's medium-term business plan through an online video message recorded at the company's headquarters in Seoul on Nov. 3. Courtesy of CJ Group

By Kim Jae-heun

Local entertainment and media company CJ ENM is preparing to secure about 1.5 trillion won to acquire Hollywood film studio Endeavor Content and possibly the talent agency SM Entertainment in early 2022.

It will cost $775 million (920 billion won) alone to acquire over an 80 percent stake in Endeavor Content, which could strain CJ ENM's finances.

According to the contract the entertainment firm signed with Endeavor Group Holdings, the parent company of Endeavor Content, the follow-up procedures including the payment will be settled in the first quarter of next year.

To prepare for the deal, CJ ENM opted to seek a short-term loan of 900 billion won right after the announcement of Endeavor's stock purchase agreement. The figure accounts for 21.5 percent of CJ ENM's capital. CJ ENM's volume of short-term loans surged from 85 billion won to 985 billion won instantly.

The entertainment firm will have to create cash through its business activities to cope with its new loan and interest payments. Also, the company needs another 600 billion won to 700 billion won to acquire an 18.72 percent stake in SM Entertainment, owned by its founder Lee Soo-man.

CJ ENM is confident it can proceed with the acquisition without any problems. Its cash flow from business operations totaled 425.5 billion won in 2019 and 495.3 billion won in 2020. The company possesses about 1 trillion won from the cash influx during those two years.

The company's debt-to-equity ratio also stood at a solid 65.7 percent in the third quarter of this year. CJ ENM's debt ratio can rise rapidly when it takes over SM Entertainment following Endeavor Content, but there is no big problem dealing with the debt if it pays with cash or cashable assets it owns plus additional money market instruments.

“We are carrying out large-scale investments we planned for intangible asset and digital transformation by 2023 at the group level. We have already secured sufficient financial capabilities to seek new growth engines and create synergy,” a CJ ENM official said.

Meanwhile, CJ Group Chairman Lee Jay-hyun vowed to invest more than 10 trillion won over the next three years to focus on cultivating four growth engines in the fields of culture, platform, wellness and sustainability.