K-pop monopoly? BTS agency's plan to buy big slice of rival stokes concern, says activist fund

SM Entertainment Co

16/02/2023 08:08

By Hyunsu Yim and Joyce Lee
       SEOUL, Feb 16 (Reuters) - As the company behind K-pop
royalty BTS seeks to build a big stake in a prominent rival for
close to $900 million, a vocal activist fund is playing a
leading role in the target's all-out efforts to stay
independent.
    The fund, Align Partners, is fronting a media campaign
against plans by HYBE  352820.KS , home to acts like girl band
NewJeans as well as BTS, to rack up a 40% slice of SM
Entertainment  041510.KQ  on the grounds of monopoly and
transparency.
    Align Partners' stake in SM, a pioneer in K-pop behind acts
like Girls' Generation and Red Velvet, is just 1% - but still
worth tens of millions of dollars. Together, the fund's chief
executive told Reuters, HYBE and SM will be a dominant force in
South Korea's music business, now growing rapidly around the
world.
    "HYBE and SM together accounted for 52% of record sales last
year according to data from the Circle Chart," Align Partners
CEO Lee Chang-hwan said in an interview, referring to South
Korea's sales tracking agency. 
    "Concert tickets or album prices might be raised, which is
something I believe the Fair Trade Commission will look into,"
he said, adding the impact of the acquisition on the diversity
of the K-pop industry is also a "question worth asking".
    Under its plans, HYBE - worth more than $6 billion by market
value - is seeking to acquire an additional 25% stake through an
ongoing tender offer after agreeing to purchase a 14.8% stake
from SM's founder earlier this month - three days after SM
struck a deal to sell a 9.05% stake to South Korean tech giant
Kakao Corp  035720.KS .
    HYBE hasn't disclosed whether it intends to buy more of SM
after the current tender offer. Taken together, the 40% stake
would cost HYBE about 1.137 trillion won ($884 million) under
current plans - though SM shares traded above HYBE's tender
offer price on Thursday. 
    SM's market valuation - currently about 3.14 trillion won -
could triple in three years if issues that have previously
weighed on the stock, such as governance, are eliminated, Lee
estimated.
    "Any directors appointed by HYBE will work for HYBE ... not
the 60% minority shareholders," said Lee, who has been nominated
by SM's management for a seat on its board of directors at an
annual shareholder meeting next month. 
    Align's Lee said this would become a proxy fight, with SM's
current executives wooing shareholders with plans to improve
SM's sales and profitability. 
    HYBE said in a statement on Thursday it "plans to make every
effort to advance the governance structure of SM Entertainment"
and its tender offer is the same price it paid to SM's founder
as it works to increase minority shareholders' profits." 
    "Directors (proposed by HYBE) will seek to make SM
Entertainment a company ... that puts shareholder rights first,"
HYBE said, adding that it will engage sincerely with antitrust
watchdog Fair Trade Commission's review. 
    According to internal data provided to Reuters by Blind, an
anonymous professional networking website, 220 out of 259, or
about 85%, of verified SM employees using the network backed the
company's current executives and Kakao, while the remaining 39
favoured the HYBE plan.
($1 = 1,284.9500 won)
 (Reporting by Hyunsu Yim and Joyce Lee; Editing by Kenneth
Maxwell)
 ((Hyunsu.Yim@thomsonreuters.com;))