Kakao makes near-$1 billion tender offer for SM Entertainment in challenge to Hybe
South Korean tech giant Kakao has announced a bid to acquire up to 35% of SM Entertainment shares, which, if successful, would make them the K-pop company’s largest shareholder.
Kakao issued a regulatory filing on Monday that offered $114.40 per share, for a total value of around $960 million.
If the offer is successful by the March 26 deadline, Kakao and its Kakao Entertainment subsidiary would boost their current 4.9% stake to nearly 40%, topping K-pop entertainment company HYBE’s current 15.8% stake, achieved just last month..
HYBE, home to K-pop acts like BTS, LE SSERAFIM, SEVENTEEN and NewJeans, offered to purchase an additional 25% stake but failed, and only gained another 0.98% following their purchase of SM founder Lee Soo-man’s 14.8%.
“Kakao decided it is inevitable to secure the largest shareholder position to protect the partnership with SM Entertainment,” Kakao said in a statement.
The bid from Kakao comes days after a South Korean court blocked them from acquiring a 9.05% stake in SM after the company attempted to issue new shares.
Lee, who filed the lawsuit last month, claimed that the deal gave Kakao unfair and illegal action in distributing content and gaining new shares.
Backing Lee, a South Korean court ruled that SM’s current management had acted unlawfully by issuing “new shares and convertible bonds without shareholders’ consent in an attempt to influence the company’s control and governance.” HYBE thanked the court for its ruling, and Lee’s lawyers warned that they would take legal action if SM’s management attempted to commit unlawful acts in the future.
As it stands, with their current 15.8% stake and Lee’s 3.65%, HYBE has the voting power of 19.4% of outstanding shares. Korea’s National Pension Service owns 6.2% of SM’s shares.
SM Entertainment is slated to have an annual shareholder meeting on March 31 to clear up the embroiled battle.
SM’s current management and many of their employees have largely opposed HYBE’s acquisition, considering it a “hostile takeover.” Co-CEO Chris Lee, nephew to ousted founder Lee Soo-Man, has alleged his uncle has committed offshore tax evasion for years and caused delays in the releases of SM artists. SM and its co-CEOs have launched a series of highly publicized videos on their personal and company YouTube channels airing their grievances about the acquisitions.
HYBE published an open letter shortly after reaching their majority shareholder status. The letter communicated that they align with SM’s reputation as a titan of industry and with the company’s current business plans. According to the letter, SM artists will remain mostly independent from HYBE influence.
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