Kakao Secures Controlling 40% Stake in SM Entertainment, HYBE at 9%

Kakao SM Entertainment
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Kakao SM Entertainment
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Photo Credit: Kakao Entertainment

South Korean company Kakao has obtained a controlling stake in K-pop agency SM Entertainment, leaving HYBE with 8.9% stake.

Previous reports suggested HYBE hoped to sell its entire 15.8% stake to Kakao and Kakao Entertainment after losing a battle for control of SM Entertainment. However, Nikkei reports that Kakao’s tender offer for a 35% stake at $115 per share attracted acceptances for more than double the targeted stake, forcing it to scale back allotments in proportion. HYBE says it now has an 8.81% stake in SM Entertainment.

Kakao bought its stake in SM Entertainment for 120,000 won ($98) per share from SM founder Lee Soo-man—considered the ‘godfather’ of the K-pop industry.

Had HYBE been able to share its entire stake into Kakao’s officer, it could have pocketed around $87 million from the deal. That’s a 25% gain on an investment made a little over a month ago. SM Entertainment serves as the home for several K-pop groups including EXO, Red Velvet, Girls’ Generation, H.O.T., Super Junior, SHINee, NCT Dream, and Aespa.

“After the swift and amicable completion of the acquisition, we will form the business cooperation plans between Kakao, Kakao Entertainment, and SM Entertainment and share them with our investors,” Kakao CEO Hong Eun-taek told shareholders following the news.

Founder Lee Soo-man sold the majority of his shares to HYBE for $334.5 million February 2023. SM Entertainment management opposed further acquisition plans, expressing concerns of a ‘hostile takeover.’ Chris Lee, co-CEO and nephew of Lee Soo-man, accused his uncle of being involved in an offshore tax evasion plan, resulting in delays for the SM Entertainment roster. Soon a South Korean court blocked Kakao from acquiring a 9.05% stake in SM, which prompted the Kakao offer of $115 per share.

Following the Kakao acquisition, shares of SM Entertainment rose 3.5% in trading. “By merging SM Entertainment’s global intellectual property and producing system with Kakao’s IT technologies and business strategies, we will create new values,” says Bae Jae-huyn, Kakao’s Chief Investment Officer.

Under the new leadership, SM and Kakao will set up a joint venture to prioritize global market outreach in the United States in particular. Further partnerships between Kakao Entertainment America and U.S. music businesses are the goal.