HYBE to discontinue acquisition of SM Entertainment after discussion with Kakao

HYBE is ceasing its acquisition of SM Entertainment, the K-pop company announced today (March 12), after a discussion with competitor Kakao.

In a press statement, HYBE said it decided to suspend the acquisition after a discussion with tech giant Kakao. “The two companies agreed to cooperate on matters related to their platforms,” it added.

HYBE made the decision, it said, “after observing that the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment”. It added, “The company has also taken into account the potential negative impact on HYBE’s shareholder value.”

The announcement comes just over a month to the day that HYBE first announced that it had struck a deal with SM’s former chief producer Lee Soo-man to buy his shares and become a majority stakeholder in competing K-pop label SM.

In today’s statement, HYBE said it “acquired former Chief Producer Lee Soo-man’s shares and made the tender offer based on a fair acquisition price range, considering the long-term value of SM, and all costs that may arise during the post-merger integration process”.

“However, HYBE determined that the price of acquiring SM exceeded the fair acquisition price range as the competition with both Kakao and Kakao Entertainment intensified. HYBE contemplated the possibility that this acquisition, along with the tender offer, may harm shareholder value, and fuel overheating of the market, in making the decision.”

HYBE’s bid to acquire SM was met with fierce opposition by SM’s leadership and staff, who characterised the move as a “hostile takeover”. The day HYBE completed its acquisition of a 14.8 per cent stake in SM, SM revealed a partnership it had previously forged with Kakao to distribute its music and concert tickets, to HYBE’s objections.

After a HYBE tender offer to minority shareholders added only a 0.98 per cent stake to its share in SM – a far cry from the 25 per cent it had hoped to acquire – Kakao then made its own bid to become SM’s largest shareholder by tendering an offer for 35 per cent of the company. If successful, this will make Kakao the largest shareholder in SM with 40 per cent, in comparison to HYBE’s 15.

In a statement reported by Soompi, SM Entertainment says it respects HYBE’s decision to halt the acquisition and “will use this agreement as an opportunity to push forward at full speed with our ‘SM 3.0’ strategy”. SM will unveil a new board of directors under this SM 3.0 strategy at its shareholder meeting on March 31.

Per SM’s statement, Kakao says that it will “maintain autonomous/independent operations” to respect SM Entertainment’s “employees, artists, and fandoms”, the company’s “strongest assets and driving force”.