Hybe warns SM Entertainment of legal actions over deal with Kakao

SEOUL, Feb. 24 (Yonhap) -- Hybe, the K-pop powerhouse behind BTS and the largest shareholder of SM Entertainment, said Friday it will take all necessary legal measures against a recent contract that SM struck with its alliance partner Kakao Entertainment in defiance of Hybe's takeover bid.

The contract, which gives Kakao the exclusive right to circulate SM's albums and music as well as the preemptive right to purchase new shares in SM, was made known Thursday amid Hybe's ongoing bid to take over SM after becoming its largest shareholder.

"After learning of what is in the business contract, we were both surprised and concerned," Hybe said in a statement. "A review is under way on legal problems contained in this contract. According to its result, we will take all necessary legal measures, both civil and criminal."

Hybe claimed the deal means Kakao could keep increasing its share in SM by taking advantage of the preemptive share purchase right, and would end up hurting ordinary shareholders by undermining the value of assets held by other shareholders.

"Compared with the important business rights that SM is handing over, what it gets in return is unreasonably small," Hybe said. "We believe this contract damages the value of SM shareholders, restricts the rights of SM artists and limits the future of SM employees. The current SM management should suspend all decision-making related to details of this contract."

On Wednesday, Hybe completed its acquisition of a 14.8 percent stake in SM from its founder Lee Soo-man despite SM's criticism of the purchase as a hostile merger and acquisition to control the firm. Hybe is seeking to acquire a 40 percent stake in SM by the annual shareholders meeting slated for March 31.

ejkim@yna.co.kr
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