Kakao Corp., South Korea’s internet giant, launched a tender offer to become the largest shareholder of SM Entertainment Co., boosting the shares to a new high in an escalating battle for control of the K-pop label with entertainment powerhouse Hybe Co.
(Bloomberg) — Kakao Corp., South Korea’s internet giant, launched a tender offer to become the largest shareholder of SM Entertainment Co., boosting the shares to a new high in an escalating battle for control of the K-pop label with entertainment powerhouse Hybe Co.
Kakao and its entertainment unit, Kakao Entertainment Corp., are offering to buy up to a 35% stake in SM for 150,000 won per share, with the total value of the offer about 1.25 trillion won ($960 million). The duo currently hold about 4.9% of SM shares and the tender offer could take that to almost 40%.
SM shares soared 15% to 149,700 won, just below the offer price. They traded at less than 80,000 won for most of the year through January. Hybe shares were down 1.7%, while Kakao shares dropped 3.3% on Tuesday.
The deal, if successful, would help Kakao and SM’s existing management fend off Hybe’s effort to take control of the rival music label. Kakao had said earlier that it had no intention of taking a controlling stake, and suffered a setback last week when a court blocked its proposed purchase of a 9% holding at SM.
“We believe that this will be a successful tender offer,” said analyst Douglas Kim, who writes on the Smartkarma platform. “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.”
SM executives also publicly supported Kakao’s bid. SM expects to strengthen its platform capabilities through cooperation with Kakao, they said in a joint statement. Hybe is engaged in internal discussions on the matter, a Hybe spokesperson said without elaborating.
Hybe, the label behind global phenom BTS, failed to get much support for its own SM tender offer, opening the door to a bidding war. The Kakao bid price is 25% above the 120,000 won offered by Hybe.
Hybe, which secured a 14.8% stake in SM from founder Lee Soo-man, added only a fraction of the shares in rival SM in its offer, an embarrassing setback for the label which had argued its takeover attempt was critical to preserving K-pop’s global influence. Hybe secured about 15.8% shares and it can also control a further 3.65% voting rights on behalf of the founder Lee.
Backed by Saudi Arabia’s wealth fund and Singapore’s GIC, Kakao and its entertainment unit are eager to secure intellectual property of K-pop talent for overseas expansion. South Korea’s largest messaging operator has been mulling a listing of its entertainment unit overseas or at home. SM’s executives also explained Kakao’s platform business and technology are essential for them to grow globally.
Kakao said that its bid to become SM’s largest shareholder is necessary to ensure stable management at the music label, and it plans to support the current leadership at the company.
It’s unclear whether Hybe will make a counteroffer and try to fend off Kakao.
“We believe this probability is VERY LOW,” Kim wrote, citing Hybe’s need for financing to engage in such a pricey fight.
The takeover battle will take center stage at SM’s annual shareholders’ meeting scheduled on March 31. Both sides are seeking to form a board with their recommended directors.
–With assistance from Kurt Schussler and Mayumi Negishi.
(Updates with closing share prices and SM comment)
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