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| The headquarters of SM Entertainment in Seoul / Courtesy of SM Entertainment |
HYBE urges SM to rescind partnership deal with Kakao
By Anna J. Park
Kakao planned to hold an emergency board meeting on Monday evening, industry sources say, to discuss how to respond to the fast-developing situation surrounding its de facto battle with HYBE to win the management rights to SM Entertainment.
The saga surrounding the fight between the corporate giants has been unfolding at breathless speed since last month.
In the latest development, the big tech's plan to strengthen its partnership with SM Entertainment by securing a 9.05 percent stake was crushed last Friday. The local court granted an injunction requested by SM founder Lee Soo-man, who filed for legal action in early February to stem Kakao's acquisition of the sizeable stake.
Following the court decision last Friday, SM Entertainment announced on Monday in its regulatory filing that it officially revoked a contract with Kakao to issue new shares and convertible bonds to the big tech. The entertainment firm explained that the move is to abide by the court ruling.
On Monday, HYBE seemed to take the upper hand as it called on SM to immediately drop its previous deal to form a strategic business partnership with Kakao. The global K-pop powerhouse that produces BTS also urged SM to rescind its board member recommendation appointed by Kakao, demanding SM respond by Thursday this week.
Kakao's next move?
The ball is back in Kakao's court. Market watchers are focusing on whether Kakao would step out of the current war while embracing its defeat in the fight over SM's management rights or simply fight harder against HYBE.
Some view that Kakao would launch its tender offer to acquire a major stake in SM Entertainment, offering a higher price than HYBE's tender offer price of 120,000 won ($92) at the end of last month. This scenario requires a huge sum of money, as market analysts say Kakao would need to suggest a price of 140,000 won or higher. Some also forecast Kakao will attempt to acquire a significant stake in SM through block deals.
Kakao can afford the investment, as it has attracted investments worth a total of 1.2 trillion won from sovereign wealth funds of Saudi Arabia and Singapore. In addition to Kakao's ample cash resources, it also has other strong motivations to hold a stake in SM. Its entertainment subsidiary ― Kakao Entertainment ― plans to go public in the near future, and the valuation of the IPO would certainly rise if it gets the majority stake in SM. Also, the acquisition of SM is an integral part of Kakao Entertainment's global business vision.
For these reasons, market watchers expect the big tech won't give up its pursuit of management rights easily. Market investors also seem to have the same expectations, as the stock price of SM Entertainment rose to its all-time high of 134,900 won during Monday's trading session. It finished at 130,100 won, a 0.7 percent increase from last Friday. The price is more than 10,000 won higher than HYBE's tender offer price.
Meanwhile, the Financial Supervisory Service (FSS) said it is currently investigating whether any acts of market manipulation took place during HYBE's tender offer period. In a regulatory filing on Monday, HYBE said that it acquired an additional 0.98 percent stake in SM Entertainment through the tender offer.
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