S.Korean corporate K-pop battle likely to drag on as SM resists takeover

SM Entertainment Co

27/02/2023 10:38

By Hyunsu Yim
       SEOUL, Feb 27 (Reuters) - South Korean management
company SM Entertainment, trying to fend off a takeover by rival
HYBE  352820.KS , which manages the K-pop's BTS, announced a new
shareholder return policy on Monday, the latest move in what
looks set to be a lengthy battle.
    HYBE became the largest shareholder of SM, one of the big
three K-pop powerhouses, which manages groups like EXO and
Girls’ Generation, after acquiring a 14.8% stake this month.
    SM  041510.KQ , in an emailed statement, said it planned to
bump up shareholder return targets to at least 30% of its
separated net income as it seeks to keep onside small investors
– who own just over 70% of shares in SM.
    SM accused HYBE of obstructing its efforts to introduce a
fairer shareholder return policy and forcing SM "to go back to
the days when only major shareholders mattered”.
    HYBE issued a statement criticising SM for a decision by its
board of directors to approve buying treasury stocks worth 63.5
billion won ($48.07 million).
    The South Korean pop music industry was dominated for years
by three big companies - SM, JYP  035900.KQ  and YG
Entertainment  122870.KQ  - until boy band BTS rose to
international fame, making HYBE bigger than the other three.
    Monday's exchange is the latest in a series of
back-and-forths between the two sides, HYBE and estranged SM
founder Lee Soo-man on the one hand, and an alliance between SM,
the Kakao conglomerate, and activist fund Align Partners on the
other.
    SM shares traded at 120,300 won, down 0.58%, as the market
closed on Monday, nearing HYBE’s tender offer price of 120,000
won. 
    The tender offer period comes to an end on March 1, a
holiday in South Korea when the market is closed.
    Even though HYBE seeks to acquire a further 25% stake in SM
through a tender offer, its plan to take it over is heading for
a drawn-out fight.
    "With the stake owned by the institutional shareholders and
uncertainty over how individual shareholders will vote, we won’t
know until the end of the shareholders’ meeting whether
shareholder proposals made by SM will prevail over HYBE’s, or
vice versa,” said Park Seong-guk, an analyst at Kyobo
Securities.
    Kakao Entertainment said on Monday it was working closely
with its parent, the messaging platform giant Kakao Corp, to
take all measures to protect its partnership with SM. 
    Kakao had been refraining from commenting for weeks on the
proxy fight between HYBE and SM.
    On Feb. 7, Kakao announced it would acquire a 9.05% stake in
SM in a deal worth 217.2 billion won ($172.8 million). One day
later, SM founder Lee filed for an injunction to block the move,
setting off a media campaign from both sides to promote their
candidates for the Board of Directors.

 (Reporting by Hyunsu Yim; Editing by Robert Birsel)
 ((Hyunsu.Yim@thomsonreuters.com;))