SM Entertainment Cancels Share Issue To Kakao As K-Pop Corporate Battle Intensifies

The K-Pop world is currently going through one of its biggest ever corporate dramas, with SM Entertainment, the label of BoA, Girls Generation, EXO and Super Junior, fighting off what its management is describing as a hostile takeover from its rival HYBE, home of BTS. 

In the latest development, SM Entertainment said today that it was cancelling a share issue to Korean tech giant Kakao Corp and its Kakao Entertainment subsidiary, which was a move that appeared to be an attempt to limit HYBE’s influence. 

A court in Seoul said on Friday (March 3) that it was upholding an injunction sought by SM Entertainment’s former chief producer, Lee Soo Man, against the proposal that would have given the Kakao companies a 9.05% shareholding in SM Entertainment, along with an exclusive distribution contract. If the deal had gone through, it would have made Kakao the second largest shareholder in SM Entertainment behind HYBE. 

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HYBE announced last month that it was acquiring a 14.8% stake in SM Entertainment, in a deal that makes it the entertainment giant’s largest shareholder. It has acquired the shareholding from Lee who held an 18.5% stake in the company. 

The HYBE deal, which is scheduled to close today, prompted complaints and an open letter from SM staff accusing Lee of tax evasion and other illegal financial activities. Known as the ‘King of K-Pop’, Lee had a falling out with SM management and had his contract terminated one year early in October 2022.  

HYBE CEO Park Jiwon has said the deal is not a hostile takeover and that he respects SM’s growth plans to expand the use of its artists’ intellectual property for merchandise, games and other non-music products. 

HYBE has also said that it plans to buy Lee’s remaining 3.6% stake in SM and will make an open offer to all shareholders to acquire a further 25% of the company.

Following the Seoul court’s decision to uphold Lee’s injunction, HYBE also demanded that the strategic partnership between SM and Kakao should be terminated. In an open letter sent to SM today, HYBE stated: “The contract has a clause unfavourable to SM but in favor of Kakao. The current board of directors should fulfil its duty by actively exercising the right acquired by SM to terminate the contract.”

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