HYBE strikes deal with SM Entertainment founder Lee Soo-man to become the rival K-pop label’s biggest shareholder

HYBE, the South Korean entertainment giant behind BTS, has struck a deal to acquire a controlling stake in rival K-pop label SM Entertainment.

In the regulatory filing posted by HYBE earlier today (February 10), the entertainment company announced that it had purchased 3.5million shares from SM Entertainment founder and former chief producer Lee Soo-man at ₩120,000 (approximately £78.46) per share. HYBE is set to acquire a 14.8 per cent stake in SM and become its largest shareholder.

Founded in 1995, SM Entertainment has been a key architect of the global K-pop phenomenon, having developed artists from the industry’s first generation and housed many influential acts including H.O.T., Girls’ Generation, BoA, Super Junior and more. Acts signed to its roster today also include aespa, NCT, SHINee and Red Velvet, among others.

First established in 2005 as Big Hit Entertainment, HYBE is a record label and talent agency that became dominant thanks to the global success of BTS. Through its subsidiaries – that include Pledis Entertainment, Source Music, ADOR and more – the agency is also home to K-pop acts Tomorrow X Together, ENHYPEN, SEVENTEEN, LE SSERAFIM, NewJeans and more.

With an 18.5 per cent stake in SM, Lee – who is sometimes described as the ‘godfather of K-pop’ – is the company’s single largest stakeholder. He put up his stock for sale in 2021 in an effort to increase SM Entertainment’s corporate value, hoping to maximise the sale price and retain his title as then-chief producer for SM following the sale of his stocks, according to a report by Korean Economic Daily at the time.

In 2022, a little over a year after Lee had put his SM stocks up for sale, the label announced it would terminate its production contract with his production company Like Planning, after investors claimed that ties between SM and Like Planning were “damaging shareholder value”. Last Friday (February 3), SM’s co-CEOs Lee Sung-soo and Tak Young-jun – the former being Lee Soo-man’s nephew – said that SM’s contract with its own founder had been terminated, an announcement which reportedly divided employees.

According to The Korea Times, the deal between HYBE and Lee will be finalised on March 6. HYBE has also offered to purchase another 25 per cent stake in the agency from other investors, per Bloomberg. SM’s top executives, including its co-CEOs, have issued a statement stating their opposition to any “hostile takeover from outsiders, including HYBE”, the publication reports.

According to CNBC, after the announcement, SM’s shares jumped by over 16 per cent at the open in Seoul and HYBE’s by 6 per cent. Competing K-pop labels JYP Entertainment and YG Entertainment – known together with SM as the “Big Three” agencies of K-pop – also saw their shares rise, the former by 2.5 per cent and the latter by 3.8 per cent.

HYBE’s move to take over SM comes following yesterday’s news that HYBE America had acquired Quality Control (QC) Media Holdings, which is home to US hip-hop acts including Migos, Lil Yachty, City Girls and Lil Baby. The acquisition marks Scooter Braun’s first major move as the sole CEO of HYBE’s US division, a role he officially assumed in January.

It also comes on the heels of Kakao announcing on Tuesday (February 7) its acquisition of a 9.05 per cent stake in SM which would have made the South Korean tech company, after Lee Soo-man, the second-biggest shareholder in the company. Lee’s legal counsel alleged that Kakao’s acquisition of company shares was an “act of illegality” and filed an injunction to stop the transaction.

A joint statement from HYBE chairman Bang Si-hyuk and Lee on the deal said that both executives “mutually agreed on the shared vision for the future of [the] K-pop industry”.

“HYBE fully agrees with former Chief Producer Lee’s strategic initiatives including metaverse, a multi-label system, and the sustainable vision campaign,” Bang and Lee’s joint statement reads, per Variety. “Leveraging our capabilities and resources, HYBE will further strengthen the presence of K-pop in the global stage.”

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