HYBE Set for Early Completion of SM Entertainment Investment, Despite Raging Controversies

HYBE, the South Korean talent management company behind BTS, said Wednesday that it has already paid for its purchase a 14.8% stake in rival SM Entertainment and expects to complete the deal by March 6, ahead of the previously announced schedule.

The company announced earlier this month that it will buy most of the 18.5% stake in SM Entertainment owned by founder Lee Soo Man, making HYBE SM Entertainment’s largest shareholder.

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The deal is priced at $336 million (KRW423 billion), giving SM Entertainment an implied valuation of $2.27 billion.

Lee retains an option to sell the remainder of his stake to HYBE at specific prices within a month. HYBE has also offered to buy a further 25% of the company from other shareholders.

Despite this, HYBE says its share purchases do not amount to a hostile takeover. HYBE CEO Park Jiwon on Wednesday issued a lengthy statement seeking to reassure SM stakeholders, fans and staff.

“HYBE fully respects the direction set out in SM 3.0 growth strategy as well as the value and vision SM’s employees and artists have created,” Park’s statement said. “We hope to enjoy more success with fans, employees, artists and shareholders of SM in the future. If we work side by side we can continue to lead K-pop’s global phenomenon.”

The reference to SM 3.0 is a recently announced plan to establish a multi-production and label system, and to use the intellectual property rights of its artists for merchandise, games and other non-music products.

Lee announced his intention to sell his stake some two years ago. At one time the bidders were thought to include Korean tech giants Naver and Kakao, though last year it was reported that the list had been whittled down to a single suitor – Korean entertainment giant CJ ENM.

After HYBE announced that it had secured the deal with Lee controversy erupted on multiple fronts. These included the financial and business relationship that other companies controlled by Lee maintained with SM Entertainment, and vociferous objections from SM Entertainment staff.
Some 208 staff signed an open letter last week that labelled Lee’s activities as illegal.

“Once former chief producer Lee Soo Man was in danger of having his illegal tax evading actions unveiled, he sold his shares to a competitor company that he used to speak ill of and ran away.
[We] members of SM have been completely used in former chief producer Lee Soo Man’s illegal acts including fraudulent actions for his personal interests and tax evasion. We cannot be used by HYBE’s illegality and expediency again even before we begin the SM 3.0 project,” the letter began.

Park’s latest letter did not address the concerns about Lee and his contracts. However, last week in an earlier memo, he said: “What we have heard for the past few days are nothing but things of the past involving Lee and the current management of SM and will not affect the future to be led transparently by Hybe and SM.”

He also said that a HYBE-backed SM Entertainment is under no obligation to maintain a future business relationship with Lee.

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