SM Entertainment takeover sends shockwaves through the K-pop industry
Kakao will be the new owner of SM Entertainment.
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The backstory: So, remember when we talked about SM Entertainment – the K-pop industry giant– planning to sell a chunk of its shares to Kakao – which runs Korea's largest social media and messaging platform – for a whopping US$173 million? Well, things have gotten pretty intense since then.
More recently: It was SM Entertainment's management that was aiming to broker the deal with Kakao. The company's founder (and primary shareholder) Lee Soo-man wasn't too thrilled about the idea and even filed a request to stop the deal. Lee then sold a 15% stake to HYBE, SM's rival agency (and the label representing K-pop supergroup BTS). This move triggered a massive takeover battle, and HYBE launched a public tender offer to buy even more stakes in SM. But shareholders didn't seem to support its efforts.
That's when South Korean internet giant Kakao decided to take things up a notch and launched its own tender offer to acquire up to 35% of SM for 1.25 trillion won (nearly US$947 million).
The development: Well, HYBE withdrew from the bidding war on Sunday when the competition got a little too hot, driving the price out of its comfort zone. So now, Kakao will be the new owner of SM Entertainment. HYBE is still the primary shareholder, but the two companies have agreed to compete and collaborate, focusing on the fandom platform that's in their mutual interest.
SM's shares fell a massive 22% during Monday morning trade after HYBE backed out, with shares ending up lower than Kakao's offer of 150,000 won per share (US$116). On the other hand, HYBE and Kakao's shares went up over 7% before settling down around 2% higher, and other smaller entertainment companies also took a hit. Kakao has said the acquisition will give it the boost it needs to go public.
Key comments:
"In light of recent developments, Hybe discussed the matters with Kakao and reached an agreement to suspend the process of acquiring SM's management rights," said Hybe in a statement.
"Kakao and Kakao Entertainment will continue its tender offer bid until the 26th to secure a further stake and work on the details of business cooperation between HYBE and SM," said Kakao 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," said SM Entertainment and Hybe in a joint announcement release in February.
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