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| The headquarters of Kakao Entertainment in Pangyo District in Gyeonggi Province / Yonhap |
By Anna J. Park
Kakao has successfully acquired its target of a 35 percent stake in SM Entertainment through its tender offer, which was launched on March 7, becoming the largest shareholder of the global K-pop powerhouse. By acquiring nearly 40 percent of SM's stocks, when including the IT-tech giant's purchase of SM shares outside of the tender offer, Kakao is expected to push forward the listing of its entertainment subsidiary, Kakao Entertainment, possibly on global stock market exchanges.
While the exact competition rate for the tender offer that wrapped up on Friday afternoon is slated to be officially disclosed through Tuesday's filing, media reports and industry sources confirm that Kakao has easily succeeded in acquiring the targeted 35 percent stake, or 8.33 million shares in SM Entertainment, through the tender offer.
Given that the stock price of SM at Friday's closing was 107,200 won, far lower than Kakao's tender offer price of 150,000 won, most SM shares held by investors would've been registered for the tender offer procedures. When a higher number of shares are registered than a tender offer launcher's targeted amount, the purchaser will buy a portion out of the registered shares, according to the competition rate for the process.
HYBE, the second largest shareholder of SM, announced late last week that it responded to the tender offer by registering to sell the entire 15.78 percent stake of SM shares that it holds. Com2u2, a mobile game company, also said it participated in the tender offer by registering all of its 4.2 percent stake of SM Entertainment that it holds to sell to Kakao. KB Asset Management, which holds a 3.83 percent stake in SM, responded to the tender offer.
Kakao and Kakao Entertainment will each pay 625 billion won ($480 million), respectively, to prepare the necessary 1.25 trillion won for purchasing the 35 percent stake in the public market. From now on, Kakao will be holding a 20.78 percent stake in SM Entertainment, while the remaining 19.13 percent stake in the K-pop agency will be held by Kakao Entertainment.
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| A wall at SM Entertainment headquarters located in eastern Seoul on March 12. Newsis |
With Kakao stepping up as a de-facto new owner of SM Entertainment, board member candidates recommended by the current SM management are expected to be confirmed at the shareholders' meeting of the K-pop-producing company slated for Friday.
Now that Kakao gets to lead SM Entertainment's future business direction, the synergy between the K-pop powerhouse and the IT-tech giant is expected to accelerate their global market expansion, based on SM's 3.0 growth vision.
"By merging SM Entertainment's global intellectual property (IP) and producing system with Kakao's IT technologies and business strategies, we will create new values," Bae Jae-hyun, Kakao's chief investment officer (CIO), said.
Under the new leadership, SM and Kakao plan to set up a joint venture, prioritizing global market outreach, particularly in the U.S. market. More partnerships are expected between Kakao Entertainment America with U.S. music businesses for strengthened business.
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