GIC-backed Kakao offers to buy 35% of K-pop agency SM to fend off BTS label Hybe

Kakao said its bid to become SM Entertainment’s largest shareholder is necessary to ensure stable management at the music label. PHOTO: BLOOMBERG

SEOUL – South Korean Internet giant Kakao, which is backed by sovereign wealth fund GIC, is launching a tender offer to become the largest shareholder at SM Entertainment, escalating a battle for control of the K-pop label with BTS label Hybe.

Kakao and its entertainment unit, Kakao Entertainment, are offering to buy up to a 35 per cent stake in SM for 150,000 won per share, with the total value of the offer at about 1.25 trillion won (S$1.3 billion). The duo currently hold about 4.9 per cent of SM shares and the tender offer could take that to almost 40 per cent.

SM shares surged 14 per cent to just below the offer price. They had traded at less than 80,000 won for most of last year to January.

The deal, if successful, would help Kakao and SM’s existing management fend off Hybe’s effort to take control of the rival music label. Kakao had said earlier that it had no intention of taking a controlling stake, and suffered a setback last week when a court blocked its proposed purchase of a 9 per cent holding at SM.

“We believe that this will be a successful tender offer,” said analyst Douglas Kim, who writes on the Smartkarma platform. “The minority shareholders of SM Entertainment are cheering on as its share price appreciation will be nearly 96 per cent from end of 2022 to the tender offer price of 150,000 won.”

Hybe, the label behind global K-pop superstar group BTS, failed to get much support for its own SM tender offer, opening the door to a bidding war. The Kakao bid price is 25 per cent above the 120,000 won offered by Hybe.

Hybe, which secured a 14.8 per cent stake in SM from founder Lee Soo-man, added only a fraction of the shares in SM in its offer, an embarrassing setback for the label that had argued its takeover attempt was critical to preserving K-pop’s global influence.

Hybe secured about 15.8 per cent of shares and it can also control a further 3.65 per cent voting right on behalf of Mr Lee.

Backed by Singapore’s GIC and Saudi Arabia’s wealth fund, Kakao and its entertainment unit are eager to secure the intellectual property of K-pop talent for overseas expansion.

South Korea’s largest messaging operator has been mulling over a listing of its entertainment unit overseas or at home. SM’s executives have said Kakao’s platform business and technology are essential for the label to grow globally.

Kakao said that its bid to become SM’s largest shareholder is necessary to ensure stable management at the music label, and it plans to support the current leadership at the company.

It is unclear whether Hybe will make a counter-offer and try to fend off Kakao.

“We believe this probability is very low,” Mr Kim wrote, citing Hybe’s need for financing to engage in such a pricey fight.

The takeover battle will take centre stage at SM’s annual shareholder meeting scheduled on March 31. Both sides are seeking to form a board with their recommended directors. BLOOMBERG

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