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SM cancels deal to issue new shares, convertible bonds to Kakao

K-pop 10:05 March 06, 2023

SEOUL, March 6 (Yonhap) -- SM Entertainment said Monday it has rescinded a contract to issue new shares and convertible bonds to tech giant Kakao Corp. as the K-pop company's estranged founder Lee Soo-man won an injunction against the deal from a Seoul court.

SM said in a regulatory filing that the cancellation was made to comply with the court decision.

The company's current management struck a strategic partnership with Kakao early this month to offer 111.9 billion won (US$86.2 million) worth of its new shares, as well as convertible bonds worth 105.2 billion won, through a third-party allotment to the latter.

The deal, if sealed, would have made Kakao the second-largest shareholder of SM with a 9.05 percent stake.

But on Friday, the Seoul Eastern District Court put the brakes on Kakao's bid to acquire the stake by granting an injunction filed by Lee, saying SM did not have a compelling need for financing and the deal could undermine the value of assets held by Lee and other existing shareholders.

This photo provided by SM Entertainment shows the company logo. (PHOTO NOT FOR SALE) (Yonhap)

This photo provided by SM Entertainment shows the company logo. (PHOTO NOT FOR SALE) (Yonhap)

Hybe, the K-pop powerhouse behind BTS that's in competition with the SM management over its bid to take over the rival agency, went a step further to demand the strategic partnership between SM and Kakao be terminated too.

In an open letter sent to SM early Monday, Hybe claimed SM came to acquire the right to revoke the deal as the court injunction made it impossible for the contract to be sealed.

"The contract has a clause unfavorable to SM but in favor of Kakao," Hybe said. "The current board of directors should fulfill its duty by actively exercising the right acquired by SM to terminate the contract."

Hybe also demanded SM not take any acts that go against the aim of the injunction and withdraw the board's recommendation of the Kakao-nominated candidate for the new board and plan to appoint him at the annual shareholders meeting on March 31.

Hybe currently is the largest shareholder of SM with about a 20 percent stake.

This file photo shows an exterior view of K-pop powerhouse Hybe's headquarters in Seoul. (Yonhap)

This file photo shows an exterior view of K-pop powerhouse Hybe's headquarters in Seoul. (Yonhap)

sshim@yna.co.kr
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