S.Korea's Kakao makes $962 million tender offer for K-pop agency SM

[March 07, 2023]  By Hyunsu Yim

SEOUL (Reuters) -South Korean tech group Kakao launched a 1.25 trillion won ($962 million) offer for K-pop agency SM Entertainment on Tuesday, escalating a takeover battle with BTS manager HYBE, whose proposal did not win enough support from SM investors.

The offer sent SM shares up nearly 15% to 149,200 won on Tuesday, just shy of Kakao's tender price of 150,000 won to acquire up to 35% of the entertainment group behind popular K-pop groups such as Girls' Generation, NCT and Aespa.

Kakao, the most popular social media platform in South Korea, is expanding aggressively into the entertainment industry where it already owns a smaller K-pop agency, Starship Entertainment.

The offer for SM by Kakao Corp and its subsidiary Kakao Entertainment comes after a court accepted a request by SM's founder and once-biggest shareholder Lee Soo-man to block Kakao's earlier deal with SM, which would have made Kakao the second-largest shareholder of the entertainment group.

Lee sold his 15% stake in the company to rival HYBE in a deal that took effect last month, setting up a takeover battle for the company that pioneered the K-pop industry decades ago.

HYBE, which outgrew SM in recent years thanks to boy band BTS's global success, planned to purchase an additional 25% of SM through a tender offer. But investors did not support its 120,000 won per share offer in light of an expected rival offer from Kakao.

The tech group, which already owns nearly 5% of SM, said its plan to control up to 40% of SM would strengthen its strategic partnership with SM.
 

K-pop girl group Girls' Generation performs during concert "SMTOWN LIVE 2022" in Suwon, South Korea, August 20, 2022. REUTERS/ Heo Ran

"Kakao decided it is inevitable to secure the largest shareholder position to protect the partnership with SM Entertainment," Kakao said in a statement.

SM said its management, whose estranged relationship with founder Lee had prompted it to announce a strategic partnership deal for music production and distribution with Kakao last month, backed the tender offer from the tech group.

In January, Kakao Entertainment secured a 1.2 trillion won investment from leading sovereign wealth funds, making it the biggest overseas financing in a South Korean content company.

Kim Hyun-yong, an analyst at Hyundai Motor Securities, said it would be challenging for HYBE to top Kakao's offer without raising capital.

HYBE did not have immediate comments on Kakao's tender offer or whether it planned to launch a fresh rival proposal.

Shares in SM have doubled so far this year, valuing the company at around $2.7 billion. Shares in HYBE and Kakao were down 1.5% and 2.8% respectively as of 0540 GMT.

($1 = 1,300.0300 won)

(Reporting by Hyunsu Yim; Editing by Miyoung Kim, Gerry Doyle and Jamie Freed)

[© 2023 Thomson Reuters. All rights reserved.]  This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.