HYBE to sell $435m stake in SM Entertainment

SM Entertainment group NCT 127

Three of the South Korean music industry’s biggest players, HYBE, Kakao Corp and SM Entertainment, were embroiled in a corporate battle for control of the latter company for several weeks.

That battle officially came to an end on Friday (March 24) with the news that HYBE is selling its entire stake in SM worth $435 million.

As reported by Reuters, HYBE said in a filing on Friday that it plans to offload its entire 15.78% stake in SM for 564 billion South Korea Won (approx $435m), after accepting a tender offer from Kakao.

Last month, HYBE acquired a 14.8% stake in SM Entertainment, for around USD $335 million, via the acquisition of shares from Lee Soo-man, SM Entertainment’s estranged founder.

The company then made its intention public to acquire an additional 25.2% of SM Entertainment’s shares – which would have taken HYBE’s total shareholding up to 40% – via a tender offer to SM’s minority shareholders.

If successful, the move would have seen HYBE spend another ≈$565 million on SM shares.

HYBE’s takeover plan fell short, however, only managing to acquire an additional 0.98% stake in SM Entertainment, raising its ownership to 15.78% (including the 14.8% stake acquired in February).

Kakao / Kakao Entertainment then launched its own tender offer for SM shareholders at a higher per-share price than HYBE’s bid. Kakao is looking to acquire up to 35% of SM Entertainment for approximately USD $960 million through the process.

Kakao had already agreed a deal to buy 9.05% of SM in February, via the purchase of bonds and newly-issued shares. However, Lee Soo-man subsequently successfully blocked this buyout attempt in a Seoul court via an injunction.

HYBE’s attempt to buy a 40% stake in SM was met with strong resistance from SM’s management. On March 12, the music giant ended its takeover attempt of SM.

HYBE said in a statement at the time that it was suspending its acquisition bid following a discussion with Kakao – its rival bidder in the SM takeover process.

According to that statement: “HYBE made this decision after observing that the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment.”

HYBE added that it had “also taken into account the potential negative impact on HYBE’s shareholder value”.

Continued the HYBE statement: “HYBE acquired former Chief Producer Lee Soo-man’s shares and made the tender offer based on a fair acquisition price range, considering the long-term value of SM, and all costs that may arise during the post-merger integration process. However, HYBE determined that the price of acquiring SM exceeded the fair acquisition price range as the competition with both Kakao and Kakao Entertainment intensified.”

This news arrives as HYBE, SM Entertainment and Kakao individually look to expand in the US via either acquisitions or partnerships.

As reported by Reuters, HYBE Chairman Bang Si-hyuk said at a press conference two weeks ago that the company “will announce a substantial number of acquisitions and investments within this year as part of our efforts to widen our presence in the US”. He added that the company is interested in “top-tier” companies in the booming Latin music sector.

He also reportedly said he was “personally satisfied” with a new fan platform deal with Kakao Entertainment.

(HYBE already acquired Scooter Braun’s Ithaca Holdings for over $1 billion in 2021, while HYBE America (now run by Braun) announced last month it was buying Atlanta-born Quality Control for a sum worth approximately $300 million).

Kakao, meanwhile, recently struck a new partnership with Sony Music‘s Columbia Records in the US via Kakao Entertainment America.

Plus, SM Entertainment revealed, via a recent investor presentation, that it plans to acquire a music company in the US to speed up its global expansion.

SM said in that presentation that it is currently “reviewing companies appropriate for SM’s genre spectrum” in the US and is looking to expand into hip-hop and R&B. The company said that it plans to spend 200 billion South Korea Won on this investment strategy, which converts at current exchange rates to around USD $150 million.Music Business Worldwide

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