Regulator watches as K-pop agencies battle for tie-up with SM Entertainment

SM Entertainment Co

13/02/2023 09:50

By Hyunsu Yim and Joyce Lee
       SEOUL, Feb 13 (Reuters) - K-pop agencies HYBE
 352820.KS  and Kakao  035720.KS , battling each other to tie up
with rival SM Entertainment  041510.KQ , are facing the new
challenge of a possible review by the South Korean competition
regulator should either succeed.
    Kakao's agreement this month to acquire SM shares as a step
towards forming a partnership with the target company is also
being opposed in a court action that could improve the chances
of HYBE reinforcing its dominance of the K-pop market.
    HYBE has already agreed to buy 14.8% of SM's shares from SM
founder Lee Soo-man and is offering to buy a further 25% of the
company from other shareholders.
    Regulators are watching, however.
    "When a merger and acquisition takes place, we look at
various businesses under these corporations, including
management, record sales, streaming, tours and merchandise," Im
Kyeong-hwan, the head of the international mergers and
acquisitions division at the Korea Fair Trade Commission, told
Reuters. "We look at whether they could gain market dominance to
make sweeping changes in the prices and quality of their
services in the market."
    "Though there have been acquisition deals involving small
and medium-sized entertainment agencies, a deal on this scale is
a first for us," the official added.
    HYBE, manager of boy band BTS, accounted for 51.8% of K-pop
record sales in January, according to Hyundai Motors Securities.
    Kakao, having agreed with SM to acquire a 9.05% state in the
company, says it wants not control but a partnership, exploiting
synergies that it says have been identified in long-term
discussions. 
    But Lee is seeking a court injunction to stop the
transaction, an issue of new shares to Kakao, his lawyers said
last week.
    Shares of SM Entertainment gained 1.13% on Monday, while
HYBE's fell 3.23% and Kakao's 4.88%. SM's market capitalisation
is 2.76 trillion won ($2.16 billion).
    Analysts said that even if Kakao could acquire 9.05% of SM
shares, it would ultimately be overwhelmed by the nearly 40%
stake that HYBE is trying to build.
    "HYBE is betting nearly all of its floating funds of 1
trillion to 1.4 trillion won .... I think it's a decisive move
to secure SM, so Kakao has to think hard before it decides to
spend more money," said Jina Ahn, analyst at eBest Investment &
Securities.
    Jina Ahn, analyst at eBest Investment & Securities, said:
"Such a large K-Pop agency coming to market is unheard of. With
this acquisition, HYBE will take 60% to 65% of the K-Pop
industry."
    ($1 = 1,276.8000 won)
 (Reporting by Hyunsu Yim and Joyce Lee; Editing by Bradley
Perrett)
 ((Hyunsu.Yim@thomsonreuters.com;))