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| The headquarters of HYBE in Seoul / Courtesy of HYBE |
Kakao's 150,000 won tender offer faces obstacles
By Anna J. Park
Kakao's plan to counterattack HYBE by launching its own tender offer to purchase a 35 percent stake in SM Entertainment has met a major challenge. The stock price of SM on Wednesday soared well above 150,000 won ($113) per share, which Kakao promised to pay during its tender offer ending March 26.
The stock price started at 156,700 won at the start of the Kosdaq market at 9 a.m. on Wednesday, a 7,000 won jump from Tuesday's closing price of 149,700 won. It then rose to an all-time high of 161,200 won at around 2:39 p.m., finishing at 158,500 won, a 5.88 percent increase from the previous day.
Wednesday's hike in SM stocks is attributed to markets' anticipation that HYBE might launch yet another tender offer at 180,000 won per SM share, which is 20 percent higher than Kakao's current tender offer. Industry sources say that HYBE is currently considering launching the new tender offer, aiming to secure its originally targeted 25 percent stake in SM in addition to the 15 percent it already holds.
The global K-pop powerhouse and producer of BTS planned to solidify its control over SM via its first tender offer of 120,000 won per share conducted last month, hoping to purchase the additional 25 percent stake directly from the market. But the attempt failed, garnering only 0.98 percent more from the move.
Kakao launched its own tender offer priced at 150,000 won earlier this week, aiming to purchase a 35 percent stake in SM. However, with HYBE considering a new tender offer 20 percent higher than Kakao's current one, chances are that Kakao will also fail.
HYBE has recently appointed Morgan Stanley as its financing advisory firm, planning to attract 1 trillion won from financial investors both in the country and abroad. The entertainment company also examined an option for financing an additional 300 billion won through major security firms in Korea. If HYBE is to purchase the 25 percent stake of SM at the price of 180,000 won per share, it would need 1.71 trillion won. It would cost the firm 357 billion won more than expected initially when the company announced its failed tender offer of 120,000 won last month.
While Kakao and HYBE are each vying for control of SM Entertainment, SM stocks have logged winning streaks for six consecutive sessions since Feb. 28. SM's market cap size has more than doubled since the start of this year, reaching nearly 4 trillion won as of Wednesday.
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| A sign at the headquarters of Kakao Entertainment in Seongnam, Gyeonggi Province / Yonhap |
Full-scale fight to be determined at shareholders' meeting on March 31
It will not be an easy battle. Both sides have strong reasons to hold on to their decisions.
Kakao cannot give up on SM Entertainment, as it needs the K-pop powerhouse for its global outreach vision. The big tech conglomerate's entertainment subsidiary, Kakao Entertainment, has long focused on expanding its boundaries globally, including its music streaming services, K-pop agencies and content. As HYBE is partnering with Naver in its global fandom businesses, Kakao can no more concede K-pop market shares to its main competitor.
HYBE also needs to embrace SM because it is more than an entertainment company. It has employed IT personnel on a large scale to operate platforms for webtoons, games and IT. Holding the management rights of SM would diversify HYBE's intellectual property.
The final showdown is likely to take place at SM's upcoming shareholders' meetings slated for March 31. Both sides ― Kakao teamed up with the current management of SM and HYBE teamed up with SM founder Lee Soo-man ― are already competing fiercely behind the curtains to secure more shareholders' votes.
As minority shareholders hold 63.55 percent of SM as of the end of last year, their choice would likely determine the final winner of the battle.
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