The battle for control of South Korea's SM Entertainment has entered a whole new phase, with internet firm Kakao making a new offer to buy shares in the business with the aim of securing 39.9% of the company's stock.
Kakao - which has its own entertainment business and operates the streaming service Melon - previously agreed a deal with the management of SM to buy newly issued shares that would constitute 9% of the company. That deal, SM bosses said, would facilitate ambitious plans to revamp the business, plans they have dubbed SM 3.0.
However, that deal was opposed by SM's founder and until recently biggest shareholder Lee Soo-man. He sought to block the issuing of any new shares through the courts, while also bringing in rival Korean music firm Hybe - best known as the home of BTS - as an alternative partner for SM.
Lee sold most of his SM shares to Hybe, giving the latter a 14.8% stake in the business. It then announced its intent to buy more SM shares in a bid to boost its shareholding to 40%. Hybe also ultimately hit out at the deal with Kakao, claiming that it wasn't in the best interest of SM's other shareholders.
The SM/Kakao deal then collapsed yesterday following a court ruling last week, in which the Eastern District Court in Seoul basically sided with Lee, blocking the issuing and sale of the new shares to Kakao. SM management then confirmed yesterday that its proposed deal with the internet firm had been cancelled.
Shortly after that, Kakao announced that it was now in the market to buy up existing SM shares. It actually already has a 4.9% stake, and is now looking to acquire another 35%, taking its total stake in SM up to 39.9%.
So, Kakao is basically now trying to beat Hybe at its own game, and is offering more money than Hybe to SM's existing shareholders. Some analysts are predicting that Kakao will win, because Hybe won't want to be drawn into a price war over SM shares.
That outcome would be good news for SM's current management team, which Kakao will seemingly back if it becomes the biggest shareholder in the company.
According to Korea JoongAng Daily, the internet firm said yesterday: “Kakao is strongly confident about the competitiveness of SM Entertainment’s current board, employees and artists, and respects its new vision of SM 3.0, which is to ultimately get rid of factors that hinder the company’s growth”.
“Even after Kakao becomes the largest shareholder", it went on, "we plan to respect SM Entertainment’s originality and support the company’s independence in management. Based on an equal partnership, the two companies will create a powerful synergy to strengthen the competitiveness of K-culture".
Analyst Douglas Kim, who writes for Smartkarma, is quoted by Bloomberg as saying the probability of Hybe increasing its share offer to compete with Kakao is very low.
Instead, he says, he believes Kakao's share-buying bid will be successful, adding: “The minority shareholders of SM Entertainment are cheering on as its share price appreciation will be nearly 96% from end of 2022 to the tender offer price of 150,000 won".