The corporate drama over control of K-pop powerhouse SM Entertainment doesn’t appear to be over just yet.
A takeover battle between K-pop giant HYBE and internet company Kakao Corp for control of SM Entertainment ended last month, with Kakao Corp. emerging victorious.
But on Tuesday (April 18), news broke in South Korean media of a new twist in the saga, with SM Entertainment’s headquarters in Seoul raided by the country’s financial regulator in connection to potential stock price manipulation by Kakao.
As reported in Reuters, citing Korean news agency Yonhap, which itself cites sources, South Korea’s Financial Supervisory Service has been investigating Kakao Corp. for suspected manipulation of SM Entertainment’s stock price during its attempt to take control of the company.
As reported by KoreajoongAng Daily earlier this month, HYBE alleged in February that Kakao had purposely bought a large volume of SM Entertainment shares in order to ‘artificially up the stock price’ of the latter company with ‘the intention of making HYBE’s tender offer fail’.
Yonhap reports that HYBE ‘filed a petition for a probe into the case with the FSS in February’.
The raid at SM Entertainment’s headquarters on Tuesday took place less than two weeks after regulators raided Kakao’s own offices as part of the same investigation.
Some 40 prosecutors and investigators confiscated data at Kakao Corp.’s headquarters in the city of Pangyo, Korea JoongAng Daily reported.
Kakao Corp. officially became the largest shareholder in SM Entertainment at the end of March, after a months-long corporate battle against SM rival HYBE to take control of the K-Pop agency.
Kakao and its Kakao Entertainment unit boosted their stake in SM to 39.9% from the previous 4.9% after completing its tender offer for shares in the, according to a stock exchange filing on Tuesday (March 28).
“The special judicial police at the FSS is presently in the process of investigating if the sale of SM shares is in violation of the Capital Markets Act under guidance from the prosecution… The team is looking into whether there was artificial engagement to sway share prices in a certain direction.
Financial Supervisory Service of South Korea
“The special judicial police at the FSS is presently in the process of investigating if the sale of SM shares is in violation of the Capital Markets Act under guidance from the prosecution,” the FSS said in a statement.
“The team is looking into whether there was artificial engagement to sway share prices in a certain direction.”
Here’s a reminder of the timeline of events in the corporate battle that broke out between SM Entertainment, HYBE and Kakao:
At the start of February, South Korea-based Kakao Corp announced a deal to acquire a 9.05% stake in SM Entertainment.
Also in February, HYBE acquired a 14.8% stake in SM Entertainment for around USD $335 million, via the acquisition of shares from SM Entertainment founder Lee Soo-man.
HYBE then launched a tender offer to SM’s minority shareholders to buy an additional 25.2% of SM Entertainment’s shares – which would have taken HYBE’s total shareholding up to 40%. If successful, the move would have seen HYBE spend another ≈$565 million on SM shares.
HYBE’s takeover attempt was strongly opposed by SM’s management.
Kakao’s deal to buy a 9.05% of SM in February via the purchase of bonds and newly-issued shares was successfully blocked by SM’s estranged founder Lee Soo-man in a Seoul court via an injunction.
In March, HYBE’s tender fell short, and Kakao Corp then launched its own tender offer for SM shareholders at a higher per-share price than HYBE’s bid. Kakao was looking to acquire up to 35% of SM Entertainment for approximately USD $960 million through the process.
This offer came two months after Kakao secured 1.2 trillion South Korea Won (approx $966m) investment from what it said were “leading sovereign wealth funds”.
HYBE officially ceased its attempt to acquire a 40% stake in SM Entertainment on March 11.
The tension between HYBE and SM Entertainment appeared to be waning as recently as earlier this week, when SM Entertainment announced its artists would be joining Weverse, HYBE’s superfan platform that connects artists with fans through content such as music videos, teasers, movies and live streams.Music Business Worldwide