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Hybe confirms it will sell its SM shares to Kakao

By | Published on Friday 24 March 2023

SM Entertainment

The battle for control of K-pop company SM Entertainment is officially over with South Korean internet firm Kakao the winner. Its rival in that battle, Hybe, has now decided to sell its SM shares to Kakao.

The management team at SM Entertainment originally agreed a deal that would see it issue a bunch of new shares that would be bought by Kakao, kicking off a wider alliance between SM and Kakao’s own entertainment division.

However, that proposed deal was opposed by SM’s founder and then biggest shareholder Lee Soo-man. He went to court to block the issuing of the new shares, while also persuading Hybe that it should try to push Kakao out of the equation and take control of his company.

To that end, Lee sold most of his SM shares to Hybe, which then announced plans to buy more SM stock from existing shareholders until it had a 40% controlling stake in the company. Meanwhile, Lee’s legal bid to block the issuing of new shares was successful, forcing SM to cancel its original deal with Kakao.

Which meant, for the briefest of moments, it looked like Lee and Hybe could win this battle, and that the partnership with Kakao supported by SM’s management – including Lee’s nephew Lee Sung-soo, who is the current co-CEO of SM – had been well and truly scuppered.

But that moment was indeed brief. Kakao announced that it was also now interested in buying SM stock from current shareholders. And it also wanted to secure a 40% controlling stake. And it was offering more money than Hybe.

The latter was in no mood to enter a price war with Kakao in a bid to get control of SM and so pretty quickly bailed on its share-buying plan, with Hybe founder Bang Si-hyuk then telling journalists his company’s focus was now back on buying up American music companies.

It wasn’t immediately clear what Hybe planned to do with the SM shares it had acquired by that point. But earlier today it confirmed it will now sell its 15.8% stake in SM to Kakao, basically accepting the latter’s tender offer.

The whole thing means that Lee – who presumably hoped he’d continue to have an influence over SM if Hybe was in control – is now a relatively small shareholder in the business. Meanwhile, the SM management team, including his nephew, will get to pursue a plan for the company that they call SM 3.0 with the support and backing of Kakao.

And so, it seems, the recent corporate dramas in the world of K-pop are now at an end. I look forward to someone turning it all into a K-pop musical.