K-Pop giant HYBE has launched a new campaign to drum up SM Entertainment shareholder support for its bid to acquire its rival.
Late last month, HYBE completed its acquisition of a 14.8% stake in SM Entertainment, the company behind K-Pop stars like NCT, EXO and Aespa. The deal was worth about 422.8 billion South Korean won (approx. USD $322 million).
HYBE had earlier disclosed its plans to further raise its stake in SM to around 40% by buying an additional 25.2% of its share capital in a deal with minority shareholders.
SM’s management has opposed the bid, calling it a “hostile takeover attempt,” with SM Entertainment CFO Jang Cheol Hyuk, citing monopoly concerns, stating the plan would “cause more diverse and direct problems, including decreased diversity of artists, music and concerts.”
HYBE hit back at SM, with HYBE CEO Jiwon Park saying the plan would pave the way for “an era of change for both companies.”
But prior to the acquisition of a substantial stake by HYBE, South Korean tech and entertainment company Kakao, reportedly bought a 9.05% stake in SM Entertainment earlier in February for about 217.2 billion won (USD $162 million).
Over the weekend, HYBE warned of potentially taking “all necessary legal measures” against its rival over a contract that it entered into with South-Kakao.
The new campaign, which HYBE says it has launched “in order to share its latest business strategy and plans to prioritize shareholders in SM Entertainment”, marks the latest escalation in this ongoing corporate saga.
The company added in a statement that its campaign, which includes a dedicated microsite, was developed “to protect shareholder value from inappropriate actions by the current management at SM”.
In addition, according to HYBE, “it aims to put an end to an unequal partnership contract with Kakao, unrealistic and unsubstantiated financial projections, and emotional messages that gloss over public opinion, all of which the current SM management initiated.”
As part of the campaign, HYBE has released video statements on the website presented by two of its suggested candidates for SM internal Board of Directors: Jinsoo Jung, Chief Legal Officer at HYBE, and Jaesang Lee, President of HYBE America.
Chief Legal Officer Jinsoo Jung explains that “HYBE has been working for several years to place K-Pop as a mainstream genre,” in order to fulfill HYBE’s “vision to become the world’s leading entertainment lifestyle platform company based on music”.
He also said that “HYBE has been considering the acquisition of SM for a long time,” and has also given “much thought into how the two companies could work together”.
Elsewhere in the video, Jinsoo Jung argues that SM Entertainment’s contract with Kakao is “utterly irresponsible” citing, in particular the reported exclusive distribution rights granted to Kakao as part of the deal.
Jinsoo Jung said: “As SM artists become more popular globally, the importance of global distribution grows, so that not only domestic fans but more global fans can enjoy the content and music of their beloved artists.
“SM’s album sales record more than 15 million copies each year, which puts it in a favorable position to get the best terms for global distribution Despite their status, SM granted distribution rights to this certain company not only permanently but also exclusively.
“This weakened the company’s bargaining power henceforth and moreover makes the contract an unfair partnership contract under which SM gives far more than it gets in return from Kakao. Such a contract is an outright loss in business.”
In a separate video, Jaesang Lee, President of HYBE America, shares HYBE’s “blueprint” for SM entertainment’s “growth strategy and distribution policy when in partnership with HYBE”.
In the video, Lee calls SM “the pioneer of K-Pop” and a “symbolic company that largely contributed to the growth and development of the Korean music industry”.
He suggests, however, that “SM’s sales growth and earning power weakened due to problems with business management, governance structure, and delayed introduction of the multi-producing system”.
Elsewhere, he argues that “as a company achieving rapid growth in North America, the world’s largest market, [HYBE] can provide the most realistic and effective support for SM’s global expansion strategy”.
He added: “In particular, HYBE’s global top distribution and promotion networks, global fandom platform, as well as well-established local management, solution, and label business organizations, can offer immediate and practical business synergy.”Music Business Worldwide