Yahoo Finance K-Pop Pioneer SM Entertainment Unveils Kakao Tie-up Details to Ward Off Takeover
(Bloomberg) -- SM Entertainment Co. sketched out for the first time how investment from Kakao Corp. will take the aging K-pop pioneer to America and new internet frontiers, a key tactic in its battle to fend off BTS label Hybe Co.’s hostile takeover.
Most Read from Bloomberg
Apple Suppliers Are Racing to Exit China, AirPods Maker Says
TD Bank to Pay $1.2 Billion to End Suit Tied to Ponzi Scheme
SM on Wednesday explained in a brief Youtube video the Korean internet giant Kakao will inject capital and talent to help it distribute music worldwide and reach out to fans through chatrooms, webtoons and the metaverse. The agency behind Girls’ Generation and EXO followed that up on Thursday by projecting a 40% jump in revenue to 1.4 trillion won in 2024.
The battle between some of the biggest names in Asian entertainment has transfixed music fans and investors alike, providing a template for regional shareholder activism as well as potentially shaping the contours of the Kpop phenomenon.
SM is under pressure to win over investors and thwart a hostile takeover attempt by billionaire Bang Si-hyuk’s Hybe, the rival agency behind boyband phenomenon BTS that’s trying to gain a 40% controlling stake. That tussle arose after Align Partners Capital Management Inc. took a stake in 2022 and pushed for an overhaul, after which SM executives ousted founder Lee Soo-man. Lee — dubbed K-pop’s godfather for his role in putting Korean music on the map — is challenging SM’s subsequent alliance with Kakao in court and has dubbed his expulsion a “military operation.”
SM’s share rose as much as 2.5% on Thursday. It’s one of about a dozen companies that have become activist targets in the country this year. While campaigns often failed in the past, this time funds have helped push up the shares of companies including SM and dental equipment maker Osstem Implant Co.
Read more: Billionaire Hitman’s Label Targets Rival to Keep K-Pop’s Luster
The activist firm has argued that SM’s new initiatives will help boost its share price above 300,000 won in coming years. Hybe’s chief executive officer has countered by saying that calculation lacks understanding of the entertainment business. And founder Lee’s lawyers said in a court hearing Wednesday that the partnership with Kakao was an excuse to dilute Lee’s stake.
SM executives said in the video their alliance with Kakao would give rise to partnerships with Kakao’s entertainment arm. Kakao Entertainment Corp., the group’s internet media unit that’s now considering an initial public offering, is slated to receive an investment totaling $930 million from the sovereign wealth funds of Saudi Arabia and Singapore.
SM has also announced that all its board members will step down as registered directors to take responsibility for the situation that was “brought by the former executive producer Soo-man Lee’s mismanagement of the company.”
They recommended the board appointments of Kakao Entertainment Global Strategy Officer Joseph Chang, along with Align Chief Executive Officer Lee Chang-hwan.
Most Read from Bloomberg Businessweek
Microsoft Expands Game Pass as Regulators Fret Over Activision Deal
This Road Could Save the Planet—and Carve Up Alaskan Wilderness
Higher Interest Rates Slam Stocks and Profits But Spare Workers
The Fed-Up Copywriter Who Helped France Finally Embrace #MeToo
©2023 Bloomberg L.P.
