HYBE expected to net $87 million after selling all of its SM Entertainment shares
March 24, 2023
K-pop company HYBE announced its intention to sell its entire 15.8% stake in rival talent agency SM Entertainment to South Korean internet giant Kakao following their failed takeover.
HYBE, which houses the likes of BTS, SEVENTEEN, NewJeans, LE SSERAFIM and more, announced on Friday the sale of 3.75 million shares in SM Entertainment for $437 million in an open tender bid by Kakao.
The proposed sale of SM Entertainment’s shares is expected to generate a profit of approximately $87 million, which is 25% more than the initial acquisition cost. However, it is improbable that all the shares on offer will be procured by Kakao since that would push its ownership to a level exceeding the 35% stake it is looking to obtain by Sunday. Any remaining shares are likely to be traded on the stock market. If successful, Kakao will become the largest shareholder in SM Entertainment.
In February, HYBE acquired a 14.8% ownership interest in SM Entertainment from its ousted founder Lee Soo-man.
Their plan was to acquire the remaining 3% stake held by Lee and subsequently make an open offer to other shareholders, with the goal of purchasing an additional 15%.
Those acquisition plans faced opposition from SM Entertainment’s management, who viewed it as a “hostile takeover.” The co-CEOs published a series of videos airing their grievances on the company YouTube channel and their personal platforms. Co-CEO Chris Lee, nephew of Lee Soo-man, alleged his uncle had participated in offshore tax evasion and was responsible for project delays for SM artists.
SM sought out the involvement of Kakao and its subsidiary Kakao Entertainment, who put forward their own proposals for a partnership. Among these were a content distribution agreement, as well as the issuance of new shares and bonds to Kakao.
After SM Entertainment’s management faced a court ruling against issuing new shares with the sole aim of blocking a takeover bid, Kakao Entertainment countered with a much more lucrative offer to shareholders for up to 35% of the company’s existing equity.
In response, on March 12, HYBE conceded that its initial tender offer was inadequate and consequently retracted it.
Bidding wars aside, a three-party deal was announced that saw Kakao gaining management control of SM while HYBE secured an agreement that SM would cooperate with HYBE’s sizable online fandom business.
SM Entertainment expressed its support for Kakao’s tender offer and stated that the deal would ensure “autonomous and independent management of the company.”
HYBE’s founder, Bang Si-hyuk, revealed that the company had made two previous attempts to acquire SM Entertainment before the failed 2023 takeover bid.
Following the announcement of the three-party deal, shares of both Kakao and SM Entertainment rose by approximately 0.5%, while shares of Hybe fell by approximately 0.5%.
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