Lee Soo Man agreed to a contractual obligation that prevented him from working in the entertainment industry for a certain duration.
Lee Soo Man and HYBE are disputing the “non-compete clause” that was included in the contract when Lee Soo Man sold his shares in SM Entertainment to HYBE.
Lee Soo Man has now requested the cancellation of this clause, but HYBE said no. The non-compete clause is a provision that prohibits the seller of shares from engaging in the same industry for a certain period of time.
Analysts from investment banks (IB) say that Lee Soo Man has requested HYBE to take responsibility for the failure to acquire the business rights of SM Entertainment, while suspending operations for him to return to the entertainment industry.
Lee Soo Man’s selling of his shares in SM to HYBE was seen as retaliation when Kakao collaborated with the board of directors of SM to oust him from the company. That’s why Lee Soo Man transferred his shares to HYBE at a price 20-30% lower than the previously discussed amount.
HYBE was confident in taking over the business rights of SM when purchasing shares from Lee Soo Man. Both sides made a joint statement that Lee Soo Man and Bang Shi Hyuk want a partnership that “strengthens both sides.”
However, last March, HYBE unexpectedly signed an agreement with Kakao and withdrew from the battle for taking over SM. HYBE even participated in Kakao’s public offer for SM by selling some shares that it had bought back from Lee Soo Man to realize profits. Lee Soo Man was reportedly very angry about HYBE’s “betrayal”. Finally, he demanded HYBE remove the entertainment industry ban.
Regarding this issue, HYBE believes that “withdrawing from the acquisition of SM has nothing to do with the contract with Lee Soo Man.” This means they have no legal obligation or willingness to cancel the non-compete clause.
An official representative said, “From the standpoint of former CEO Lee, HYBE’s abandonment of the acquisition of SM is the worst outcome. Lee will continue to demand the removal of the non-compete clause.“
The market believes that HYBE will continue to maintain its non-compete clause. However, there are criticisms that HYBE’s decision to hold onto Lee Soo Man until they gave up acquiring SM was not the right move.
Some analysts believe that HYBE will still lift the non-compete clause against Lee Soo Man, as HYBE benefits if Lee establishes a new entertainment company and weakens the competitive ability of SM.