Kakao Launches Tender Offer to Buy 35% of SM Entertainment

Korean tech company Kakao will launch a tender offer to acquire up to 35% of SM Entertainment’s outstanding shares. The move came a day after a court injunction forced Kakao to cancel its plan to acquire a 9.05% stake directly from SM, whose roster includes NCT 127 and Red Velvet; a court injunction scuttled SM’s plan to issue new shares and give Kakao the stake, according to reports by Bloomberg and Reuters.

Kakao and its subsidiary Kakao Entertainment are seeking to become SM’s largest shareholder and partner, to help rebuild the company after SM’s board of directors terminated a production contract with the company’s legendary founder, Lee Soo-man, on Dec. 31. Lee sold most of his SM shares to HYBE, the home of BTS, on Feb. 22 and won a court injunction Friday that prevented SM from issuing new shares to Kakao. As a result, Kakao has been forced to seek shares from existing SM shareholders instead.

HYBE had sought an additional 25% stake in SM through a tender offer but was able to purchase slightly less than 1% of outstanding shares, the company revealed in a regulatory filing Monday (March 6). That increased HYBE’s ownership stake in SM to 15.8%. With Lee’s 3.65% stake, HYBE has voting power of 19.4% of outstanding shares. The next-largest shareholder, Korea’s National Pension Service, owns 6.2% of SM’s shares.

Kakao and HYBE are locked in a battle for control of SM’s board of directors ahead of the company’s annual general meeting on March 31. “Kakao has strong trust in the excellent competitiveness of SM Entertainment’s current management, employees, and artists, and the current management’s efforts to resolve the factors that hinder SM Entertainment’s growth,” the company said in a statement.

HYBE sees itself as the more skilled, experienced company to guide SM’s global ambitions and has criticized its competitor’s “utterly irresponsible contract” with Kakao.

Kakao and its subsidiary Kakao Entertainment, which raised $966 million from the sovereign wealth funds of Saudi Arabia and Singapore in January, will offer 150,000 won ($115.46) per share — a 25% premium over the 120,000 won ($92.36) per share HYBE offered.

SM’s share price rose 13.8% to 148,100 won ($114.09) on Tuesday morning in Seoul following news of Kakao’s tender offer.

Additional reporting by Jeyup S. Kwaak.