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| Lee Soo-man, founder of SM Entertainment, walks away after delivering his keynote speech at the Korea-Mongolia Business Forum held at the Hyatt Seoul in Seoul on Feb. 14. Newsis |
HYBE's tender offer ends Tuesday
By Anna J. Park
The battle between HYBE and Kakao over the management rights of SM Entertainment has intensified, as HYBE, currently SM Entertainment's largest shareholder, officially urged Kakao Entertainment to clarify its exact position and the nature of its partnership with SM.
"It would be a responsible act for Kakao Entertainment to clarify its position ― whether it aims to seek an active participation in SM Entertainment's management, instead of a strategic business partnership ― as the clarification would reduce the capital market's uncertainty," HYBE's statement reads.
HYBE's message came out as a response to Kakao Entertainment's earlier statement that said the entertainment subsidiary of the big tech company will be making a shift in its original strategic business partnership relations with SM.
"Kakao Entertainment cannot sit idly over the current situation, which fundamentally impairs the mid- and long-term growth direction of the three companies ― Kakao, Kakao Entertainment and SM Entertainment. We've reached the conclusion that a complete correction of the original strategic goals is required. Kakao Entertainment will be closely consulting with Kakao to seek every possible measure," Kakao Entertainment's statement reads, expressing regrets over HYBE's attempt to acquire SM's management's rights.
Kakao signed a deal on Feb. 7 to acquire a 9.05 percent stake in SM, and it was expected that Kakao, the largest shareholder of Kakao Entertainment, would transfer the SM stake to Kakao Entertainment. But SM founder Lee Soo-man filed an injunction to stop the move, and the issue is still being debated in the courts.
In the meantime, HYBE took over SM founder Lee Soo-man's 14.8 percent stake in SM in a surprise move. It also plans to acquire the majority stake through the tender offer with 120,000 won ($90.7) per SM share that will end on March 1. Given that stock markets are closed on March 1 due to it being a national holiday, the tender offer actually ends with market closing on Tuesday.
So far, it has appeared that HYBE will probably succeed at gaining dominance over SM Entertainment with the tender offer. However, Tuesday's closing price of the entertainment company far exceeded the offering price, as it closed at 127,600 won ($96.52). Now it remains unclear whether HYBE will be able to purchase as much of SM's stake as it would have wished through the tender offer.
As the two companies now seemingly vie for SM Entertainment's management rights, there's little room left for the two sides to reach a reconciliation.
Market watchers view that if the tender offer fails, Kakao might try to acquire a majority stake in SM through another tender offer with a higher price than that of HYBE. As Kakao Entertainment attracted 1.15 trillion won ($880 million) worth of investments from the Saudi Arabian sovereign wealth fund known as the Public Investment Fund (PIF), and the Singaporean sovereign wealth fund (GIC), in January, the company has enough cash to purchase the necessary SM stake.
Meanwhile, HYBE asked the Financial Supervisory Service (FSS) to conduct an inspection into a huge SM stock purchase transaction that took place on Feb. 16. HYBE said Tuesday that the purchase of 683,398 SM stocks, which is 2.9 percent of the entirety of SM shares, took place at the Pangyo branch of IBK Investment Securities, and it is highly suspicious of market manipulation.
"The transaction took place while SM stock prices soared to 130,000 won, which is higher than the tender price of 120,000 won," HYBE noted. "It is strongly suspected that the transaction deal happened for the sake of harming HYBE's tender offer," the global K-pop management agency said, urging the supervisory authority to carry out a thorough inspection of the move.
HYBE announced its tender offer of 120,000 won per SM share on Feb. 10. But the SM stock price rose to an all-time high of 133,600 won on Feb. 16, and has remained above 120,000 won since.
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