Com2uS, a South Korean game publisher, has acquired a 4.2% stake in K-pop company SM Entertainment after snapping up 990,000 shares over the course of two weeks for an undisclosed amount.
The development was reported by multiple news outlets in South Korea, citing a press release from Com2uS.
Com2uS has reportedly not disclosed how much it paid for the shares, but the Korea Economic Daily reports that the value of the shares acquired amounted to 67 billion South Korea Won ($47m).
According to reports, Com2uS bought the shares from October 12 to October 31, stating in a press release cited by Korean news outlets that it believes SM Entertainment’s shares are undervalued and that the company “has a high growth potential for the future.”
Founded in 1995, SM Entertainment has become one of the biggest K-Pop agencies in South Korea. Its roster includes big stars like SUPER JUNIOR, Girls’ Generation, SHINee, EXO, Red Velvet, KANGTA, BoA, TVXQ!, NCT and aespa.
The company has a market capitalization of about 1.57 trillion South Korea Won. In comparison, its peer HYBE, the parent company of BTS’s management team BIGHIT MUSIC, has a market cap of 5.15 trillion South Korea Won, while TWICE’s management JYP Entertainment is valued at 1.96 trillion South Korea Won.
But SM Entertainment’s stock price has fallen more than 10% year-to-date as of Wednesday (November 2) amid a volatile trading environment.
As of Tuesday (November 1), the company’s share price was down 22% from its April 1 peak of 85,900 South Korea Won.
“SM Entertainment is one of the best entertainment companies that have led to the popularization of Korean popular culture around the world,” Com2uS was quoted as saying by Korea JoongAng Daily.
“It has sold foundations with a 700-billion-won revenue and 130-billion-won net profit in 2021 and holds the most diverse artist portfolio among K-pop agencies,” the company added.
There is reportedly speculation that Com2uS built its stake in SM Entertainment before the agency’s next general meeting scheduled for March 2023 to support SM Entertainment founder Lee Soo-man, as minority shareholders are pushing for his resignation as chief producer.
On October 14, SM Entertainment cut ties with Like Planning, a private company wholly owned by Lee following investor concerns about the company’s payments of tens of billions of South Korea Won annually to Lee’s firm.
The company noted at the time that SM Entertainment paid 24 billion South Korea Won to Like Planning in 2021, accounting for 3.42% of the company’s sales in the most recent fiscal year.
Lee is SM Entertainment’s largest shareholder with an 18.5% stake. The contract with Like Planning was set to expire by the end of the year, but on October 14, the company’s board voted to end the contract after receiving in September “an intention to terminate the production contract early”.
At the time, SM Entertainment told shareholders that “with the 25-year-old production system Lee established running well, he is confident that good junior producers will manage without much difficulty. He added it is also reasonable to humbly accept minority shareholders’ opinions to step down (as chief producer),” the Korea Times reported.
Some analysts expect the termination of the Like Planning contract to be beneficial for SM Entertainment.
“SM Entertainment’s profit structure is likely to improve when the contract with Like Planning ends… It will not only improve performance of the company, but also positively affect stock prices,” Choi Min-ha, a researcher at Samsung Securities, was quoted by Korea Times as saying in September.
Meanwhile, Com2uS denied that it is acting as a “white knight” for Lee.
“This investment was conducted from a neutral position, judging that SM’s current stock price is more likely to grow in the future,” Korea’s AJU Business Daily cited an unnamed Com2uS official as saying.
From a business standpoint, Com2uS’s investment in SM Entertainment would support the game publisher’s metaverse efforts as the entertainment agency owns an extensive intellectual property portfolio.
SM Entertainment in July launched a metaverse content production technology company called Studio Kwangya in partnership with Los Angeles-based virtual reality concert platform AmazeVR.
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