Kakao Makes $1 Billion Offer in Battle for K-Pop’s SM Entertainment

Korean entertainment-tech giant Kakao has launched an offer worth close to $1 billion to buy up one third of SM Entertainment and thwart BTS management firm HYBE Corp. from grabbing control.

The Tuesday move follows a Friday court injunction that prevented SM Entertainment from issuing new shares and convertible bonds to Kakao as poison pill against HYBE’s advances. Under that scheme Kakao and its subsidiary Kakao Entertainment would have owned some 9%, making it the second largest shareholder, behind HYBE.

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Instead, Kakao is now offering KRW150,000 ($115) apiece to buy 8.33 million SM shares, or 35% of the company’s currently issued share capital, on the open market. Kakao’s offer closes on March 26.

The dramatic intervention by Kakao is 25% higher than the tender offer by HYBE, which had announced a KRW120,000 per share offer to buy 25% of SM from existing shareholders. On Tuesday, HYBE revealed that its tender (which officially closed last Wednesday) had barely registered with shareholders and that the offer had attracted less than 1% of SM’s stock.

HYBE had previously bought a 14.8% stake in SM from Lee Soo-man, its controversial former leader who has found himself increasingly at odds with the current management of the company he founded in the late 1990s. After selling most of his stake, Lee still holds some 3.5% of SM and expects to sell it to HYBE as long as certain price targets are agreed.

Kakao is a $22 billion internet conglomerate that has interests ranging from social media and messaging to games and from TV production to webtoons. Its size has previously worried Korean politicians, but it is intent on getting bigger. It recently received an additional KRW1.2 trillion ($966 million) cash injection from Saudi Arabia’s Public Investment Fund.

“Kakao has decided to become the largest shareholder of SM Entertainment in a bid to maintain a stable partnership with the company,” Kakao said in a filing. “Based on the horizontal partnership between the two companies, we will create great synergy to strengthen the global competitiveness and presence of Korean culture.”

“Unlike Hybe seeking to take over SM’s board of directors through a hostile merger and acquisition, Kakao is the best horizontal and strategic partner for the successful implementation of the ‘SM 3.0’ vision as it respects SM’s own tradition and identity, and will ensure autonomous and independent management of the company, as well as the continuous and independent activities of SM artists,” said a SM statement in support of Kakao’s move.

SM’s KOSDAQ-traded shares closed Tuesday at KRW149,700 apiece.

HYBE’s chairman Bang Si-hyuk recently said that K-pop’s upward growth trend is now facing a very clear slowdown. But the fight for what remains is very much on.

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