HYBE said they need to take over SM to grow Kpop, cooperation with Kakao is possible
CEO Park Ji Won of HYBE Labels claimed that their takeover of SM Entertainment “is crucial to solidify Kpop”.
Previously, HYBE, the agency of boy group BTS, announced that it would acquire a 14.8% stake held by Lee Soo Man, the major shareholder and former general producer of SM Entertainment, for 422.8 billion won. Lee Soo Man, who was originally the number one shareholder in SM, had an 18.46% stake, making HYBE the largest shareholder through this transaction.
Regarding this move, HYBE CEO Park Ji Won stressed the need to acquire SM in order to maintain Kpop’s global influence and make it mainstream.
In particular, Park Ji Won, CEO of HYBE, said in an interview with Bloomberg News on February 21st that Kpop, which grew rapidly during the COVID-19 pandemic, has slowed down, leading to concerns that Kpop’s momentum has already peaked.
“The most glorious days are the most dangerous period”, the CEO said, adding “We are constantly afraid that people might just stop listening to K-pop one day.” He also stated that international competitors are beginning to learn from Kpop’s overseas success, and that the industry’s formulas and methods are at risk of being exposed.
On February 10th, HYBE took over the shares of SM’s largest shareholder, General Producer Lee Soo Man, and jumped to become the number one shareholder, bringing a great shock to the Kpop market.
HYBE also decided to secure a maximum of 39.8% stake by taking a tender offer of 25% (5,951,826 shares) of SM’s total issued shares at 120,000 won per share by the 1st of March, in addition to the 14.8% stake they acquired from Lee Soo Man, the major shareholder.
However, as the share price of SM exceeded the tender offer price of 120,000 won suggested by HYBE, it became difficult for shareholders to respond to the tender offer, making it difficult for HYBE to secure their desired percentage of shares. Speculations that Kakao might stage a “bidding war” also fueled the rise, and as of February 16th, SM shares rose to 132,000 won, before closing at 123,500 won, up 1.4%.
Regarding this, CEO Park Ji Won confirmed his existing position that HYBE has no plans to change the tender offer price and is not considering alternatives other than the tender offer.
In addition, he showed confidence in the acquisition by excluding the possibility of reselling the shares of general producer Lee Soo Man.
However, even if it secures an additional stake through a tender offer, additional obstacles remain for HYBE.
In particular, if the court rejects Lee Soo Man’s request to stop the share sale of SM’s current management to Kakao on February 22nd, Kakao will become a major shareholder with a 9% stake.
Meanwhile, if the court rules otherwise, Kakao’s acquisition of shares will be put on hold, making HYBE’s acquisition of SM much easier.
Regarding this, HYBE CEO said, “We can’t elaborate on a matter that is still before the court, but I can say we have no reason to oppose a partnership with Kakao if it’s a way to boost SM’s share value,”
He declined to comment on possible scenarios after the court ruling.
In addition, Align Partners, an activist fund that owns about 1% of SM, has insisted that the tender offer price should be raised significantly, insisting that the tender offer price of 120,000 won is too low.
Regarding this, CEO Park dismissed, “(SM) is not a manufacturing company. If Align’s logic is valid, any entertainment or gaming company could just infinitely expand its content offerings to boost share prices. But it doesn’t work that way.”
On the other hand, SM Entertainment claimed that should HYBE secure SM’s management rights, there is a high possibility that the company’s business capabilities will be weakened, with their artists facing the risk of being pushed to a lower rank in music and content production.
Regarding this, CEO Park responded that HYBE will do its best to support SM artists and gain their respect and trust.
The 5 billion USD Kpop market is a tiny drop in the entire pop market, Park Ji Won emphasized, adding, “We still have a long fight ahead globally. Diversity is fundamental for our survival, and we will make sure each artist’s individuality is protected through independent labels.”
Source: Bloomberg News, Naver