Kakao officially SM Entertainment’s largest shareholder with 39.9% stake, as HYBE holds onto 8.8%


Kakao Corp. has officially become the largest shareholder in SM Entertainment, culminating a months-long corporate battle against SM rival HYBE to take control of the K-Pop agency.

Kakao and its unit, Kakao Entertainment, boosted their stake in SM to 39.9% from the previous 4.9% after completing its tender offer for shares in the agency behind K-Pop stars like NCT, EXO and Aespa, according to a stock exchange filing on Tuesday (March 28).

The owner of the KakaoTalk mobile messaging app purchased 1.66 million more shares in SM from its takeover rival HYBE for roughly 248.76 billion South Korean won (approx. USD $191 million), or 150,000 won apiece, according to a separate filing the same day.

BTS agency HYBE had planned to divest its entire 15.78% stake in SM, but Kakao’s tender offer was oversubscribed by more than twice the targeted stake, forcing the company to scale back allotments.

HYBE will remain a shareholder of SM with an 8.81% stake. Based on SM’s closing price on Wednesday, HYBE’s shares are valued at 204.42 billion won (USD $157 million) from the previous 343.18 billion won ($264 million).

The company said it pulled out of the race to take control of SM earlier this month “after observing that the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment.”

HYBE also took into account “the potential negative impact on HYBE’s shareholder value,” it said.

Hyundai Motor Securities analyst Kim Hyun-yong said retaining a stake in SM could help HYBE ‘contain’ Kakao in the long run, Reuters reported.

“Remaining as a major shareholder with more than a 5% stake would be a good move in containing (the rivals) despite not being able to exercise great influence over decision-making,” Kim was quoted by the newswire as saying.

Meanwhile, Kakao CEO Hong Eun-taek acknowledged the deal during the company’s shareholder meeting on Tuesday, saying Kakao’s next step is to materialize business cooperation between Kakao, Kakao Entertainment and SM Entertainment, according to local media outlet Ajunews.

Hong also stressed Kakao’s sharpened focus on artificial intelligence (AI) and healthcare.

“We are focusing on AI and healthcare to find new opportunities for mid-to-long-term sustainable growth,” Hong said.

Kakao recently launched a new virtual K-Pop group called MAVE through its Metaverse Entertainment joint venture with South Korean mobile game developer Netmarble.

The move reaffirms Kakao’s strategy to become a dominant player in the South Korean entertainment industry and its move to further integrate the metaverse concept into its other business units.

Kakao launched its metaverse service called Kakao Universe in June to connect global users who share the same interests.

Most recently, the company said it is planning to expand in the US and globally. It recently teamed up with Sony Music‘s Columbia Records via Kakao Entertainment’s America division.

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