Hybe Corp., the talent agency responsible for the massive success of K-pop group BTS, has announced its intention to sell its share stake in rival agency SM Entertainment, following a heated takeover battle in which it was outmatched by Korean tech giant Kakao Corp. The move marks a definitive admission of defeat by Hybe.
In February, Hybe purchased a 14.8% stake in SM from K-pop pioneer Lee Soo-man, with the expectation that it would be able to acquire the remaining 3% tranche from Lee and then offer to buy a further 15% from other shareholders. However, SM's management resisted the quasi-takeover and teamed up with Kakao and its subsidiary Kakao Entertainment to implement a variety of measures, including a content distribution agreement and the sale of newly issued shares and bonds to the Kakao entities.
Despite a court ruling that prevented SM from creating new shares for the sole purpose of blocking a takeover bid, giving Hybe and Lee an advantage, Kakao made a much richer offer to all shareholders for up to 35% of SM's existing equity. On March 12, Hybe withdrew its insufficient tender offer and acknowledged defeat.
In a regulatory filing on Friday, Hybe stated that it will now accept Kakao's tender offer and sell its 15.8% stake in SM, represented by 3.75 million shares, for $437 million (KRW564 billion). Korean business media speculate that not all of the shares being sold will go to Kakao, as that would exceed the 35% limit of its offer, meaning that any excess shares would likely be sold via the stock market.
In a three-party deal negotiated prior to Hybe's public withdrawal, Kakao secured management control of SM, while Hybe struck an agreement with SM for collaboration on Hybe's online fandom business.
On Thursday, Kakao reinforced its position as a K-pop powerhouse when Kakao Entertainment America announced a joint management deal with Columbia Records for the K-pop girl group IVE. Kakao Entertainment already owns Melon, Korea's largest music streaming platform.
The planned stake sale would result in Hybe gaining a profit of approximately $87 million, a 25% return on its investment made just one month ago primarily by purchasing a stake from SM founder Lee Soo-man, 70, who is considered the "godfather" of the K-pop industry.
Kakao's offer was endorsed by SM's current management team, led by Lee's nephew.
Hybe Chairman Bang Si-hyuk stated last week that he was "personally satisfied" with the new partnership with Kakao on fan platform businesses despite losing the battle over SM. Hybe intends to make several acquisitions and investments this year to strengthen its presence in the United States, according to Bang.
SM is home to a number of popular K-pop groups, including Girls' Generation, H.O.T., EXO, Red Velvet, Super Junior, SHINee, NCT Dream, and Aespa.
HYBE admits defeat in its bid to acquire SM Entertainment after Korean tech giant Kakao makes a richer offer.
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