HYBE became the largest shareholder of SM Entertainment on Thursday as a hearing to stop SM Entertainment from selling stock to Kakao was held the same day.
In the HYBE deal, the agency behind BTS and NewJeans bought 14.8 percent of SM Entertainment, the agency of boy band NCT and girl group aespa, from founder Lee Soo-man for 422.8 billion won ($323.4 million).
The transaction was completed 12 days earlier than the March 6 closing date announced when the two companies first signed the contract on Feb. 10.
This makes HYBE the largest shareholder and Lee the fourth-largest with 3.65 percent. The second largest is the National Pension Service with an 8.96-percent share as of last September and KB Asset Management with 5.12 percent.
“We are aware of the concerns and worries that fans, artists, staff and shareholders of SM Entertainment have due to the talks surrounding the company,” HYBE CEO Park Ji-won said in a press release.
“We are especially regretful of the concerns that the artists of SM Entertainment would have been filled with. But HYBE will respect the artists at SM just as we respect and cherish the artists at HYBE as a management company.”
Park reiterated that its takeover of SM Entertainment is not “hostile” but a good thing for both parties that will make the combined team comparable to the three largest music companies in the world — Universal Music, Warner Music and Sony Music.
“This is a time of grave importance for both companies,” Park continued. “We hope that the confusion, aggravated by some imprudent managers and short-term business choices, will not continue for long.”
HYBE’s tender offer to buy more shares of SM Entertainment at 120,000 won per stock will be valid until March 1. The company also announced on Tuesday that it is willing to work together with Kakao “based on the assumption that Kakao does not have interests in the business management” of SM Entertainment.
Kakao signed a deal to buy 9.05 percent of newly-issued SM Entertainment stock and convertible bonds for 217.2 billion won to become the second-largest shareholder earlier this month. Founder Lee immediately challenged the deal as illegal and filed for an injunction from a court.
According to Lee’s attorney, SM Entertainment’s board violated the Article 418 of the Commercial Act, which states that a company must fully explain why it is necessary to issue new stock instead of selling existing shares. The board’s argument is insufficient and is a breach of interest between the original major shareholder, founder Lee, and another company seeking to buy the agency, his attorney from law firm Hwawoo said during Thursday’s hearing.
“We have found no objective rationale or data on why the board made such a move,” the attorney said. “It seems as though they had no other goals than excluding the major shareholder from the company.”
Lawyers from Lee & Ko argued that the effort to break away from an abnormal dependence on a single producer, founder Lee, should not be interpreted as excluding him but a “decision made for the interest of all shareholders.”
Lee Soo-man “is trying to fend off the deal with an unfair means,” the attorney said.
The court demanded each party submit additional data to back their arguments. No date was set for the ruling.
BY YOON SO-YEON [email@example.com]