Kakao Moves to Secure Controlling SM Entertainment Stake After Hybe Tender Offer Falls Short

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Photo Credit: Kakao Entertainment

One day after the cancellation of a proposed deal for about nine percent of SM Entertainment, Kakao has moved to purchase approximately 35 percent of the company via a tender offer.

This newest twist in the decidedly complex showdown for ownership of SM Entertainment (KRX: 041510) – in which rival K-pop company Hybe (KRX: 352820) is the largest shareholder – just recently entered the media spotlight in reports from regional outlets as well as an update from SM.

To recap, Hybe last month bought 14.8 percent of SM from founder and former chief producer Lee Soo-man – before making clear its plans to increase the interest to a controlling 40 percent stake. SM execs quickly pushed back against these plans and attempted to sell the initially mentioned nine percent of their business to the entertainment division of Kakao (KRX: 035720); the latter in January received roughly $1 billion in funding from Saudi Arabia and others.

But Hybe’s tender offer (₩120,000/$91.13 per share) only delivered a little under one percent of SM to the BTS agency, thereby elevating its total holding to 15.78 percent, according to Reuters. Meanwhile, an injunction from a South Korean court prompted the above-described cancellation of Kakao’s deal for 9.05 percent of SM.

On the heels of said cancellation, Hybe urged SM to take additional steps to distance itself from Kakao, whereas SM expressed the belief that the Quality Control owner Hybe would be legally unable to pursue a block trade for six months following the seemingly unsuccessful tender offer.

And with Hybe’s rumored block trade potentially on the shelf, Kakao is now looking to scoop up 35 percent of SM via a tender offer (priced this time at ₩150,000/$113.91 per share) of its own, per the Korea JoongAng Daily.  

Kakao currently possesses 4.9 percent of SM and, like Hybe, is working to increase the holding to a controlling 40 percent stake. Moreover, should the tender offer prove successful, Kakao would supplant Hybe as SM’s biggest shareholder and try “to respect SM Entertainment’s originality and support the company’s independence in management,” according to higher-ups.

SM execs today expressed their approval of Kakao’s offer via a formal release, contrasting the proposed agreement with Hybe’s alleged effort “to dominate SM’s board of directors through [a] hostile M&A.”

At the time of this writing, Hybe didn’t appear to have publicly addressed Kakao’s move to purchase a larger chunk of SM, which has scheduled a shareholder meeting for the 31st. Also at the time of this writing, Hybe stock was trading for ₩186,700/$141.76 per share (a slight decrease from yesterday’s close), compared to ₩155,000/$117.68 per share for SM stock (up 3.41 percent).