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The backstory: Previously, there were three major entertainment agencies in South Korea – JYP, YG Entertainment and SM Entertainment – the group behind big Korean names like Girls' Generation. But then BTS exploded in fame and popularity. So when the heartthrobs grew to become the top-selling artist in the world by 2022, the entertainment company behind the group – Hybe – also became an industry leader in the world of K-pop.
More recently: Meanwhile at SM Entertainment, the founder, Lee Soo-man, has been dealing with drama with his shareholders. More recently, Lee has been trying to block a deal between his own company and Kakao, which operates the country's largest social media and messaging platform. The deal would've made Kakao the second-largest SM Entertainment shareholder, decreasing Lee's control. Many also believe this is Kakao's first step toward eventually buying the whole company. This comes after Kakao recently raised over US$900 million in sovereign wealth funds from the Saudis and Singaporeans.
The thing is, though, if Kakao goes into this business, it will threaten Hybe's position in the K-pop world. Plus, Hybe really needs to expand its portfolio since its main moneymaker BTS is on hiatus to complete mandatory Korean military service until 2025.
The development: With that, Hybe's jumping in, recently buying 15% of its local rival SM Entertainment. Hybe has also offered to buy another 25%, bringing its total ownership of SM Entertainment to 40% plus control of the company. The entire deal has been valued at US$900 million and has caught the attention of the country's antitrust regulators.
SM execs publicly opposed the offer, saying it was too low, with the entire executive team saying that they won't allow any hostile takeover attempts from outsiders, including Hybe. The Korea Times says the deal between Hybe and SM will be wrapped up on March 6. This comes after Hybe America has also acquired Quality Control, the label home to artists like Lil Baby, Lil Yachty and Migos.
"Lee Soo-man was in urgent need of an ally to win the race against the SM board-Kakao-Align alliance," said Lee Hwajung, who is an analyst at NH Investment and Securities.
"When a merger and acquisition takes place, we look at various businesses under these corporations, including management, record sales, streaming, tours and merchandise. Though there have been acquisition deals involving small and medium-sized entertainment agencies, a deal on this scale is a first for us," said Im Kyeong-hwan, a Fair Trade Commission senior official, told Reuters in a statement.
"SM Entertainment's largest shareholder and founder, former executive producer Lee Soo Man and HYBE's chairman, Bang Si Hyuk, have joined hands so that SM Entertainment and HYBE will become game changers in the world's popular music. This will enhance K-Pop's global competitiveness, and we have decided to make our shared vision of a lifestyle platform for future endeavors a reality," wrote SM Entertainment and Hybe in a joint announcement release late last week.