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(LEAD) Kakao announces tender offer to gain stable management control over SM Entertainment

Entertainment 15:26 March 07, 2023

(ATTN: UPDATES with statement from SM in last four paras)

SEOUL, March 7 (Yonhap) -- South Korean tech giant Kakao Corp. on Tuesday announced a tender offer for SM Entertainment Co. shares to gain stable management control over the K-pop powerhouse and increase leverage to win the intensifying battle with Hybe.

Kakao and its entertainment unit, Kakao Entertainment Corp., offered 150,000 won (US$115.4) per share to acquire an additional 8.33 million shares in SM Entertainment, with a goal to secure a combined 35 percent share, according to the company in a statement.

The tender offer ends March 26.

"Kakao has decided to become the largest shareholder of SM Entertainment in a bid to maintain a stable partnership with the company," Kakao said. "Based on the horizontal partnership between the two companies, we will create great synergy to strengthen the global competitiveness and presence of Korean culture."

Kakao's tender offer price is higher than that of Hybe, which offered 120,000 won per share to obtain up to a 25 percent stake in SM Entertainment. But Hybe's plan to acquire a leading stake in SM Entertainment through a tender offer, which ended last Wednesday, fell flat as it purchased less than a 1 percent share.

The price is also higher than the closing price of SM Entertainment of 131,000 won on the previous day on the secondary Seoul bourse.

If Kakao's plan to take over SM Entertainment through a tender offer succeeds, the tech company will become the largest shareholder with a 35 percent share, outnumbering a 19.4 percent share owned by Hybe, the K-pop powerhouse behind BTS.

The corporate logo of Kakao Corp. (PHOTO NOT FOR SALE) (Yonhap)

The corporate logo of Kakao Corp. (PHOTO NOT FOR SALE) (Yonhap)

The move came as a Seoul court last week ruled against SM Entertainment's planned issuance of new shares and convertible bonds to Kakao Entertainment to secure an around 9 percent stake in SM Entertainment, behind K-pop big names like NCT and EXO.

Kakao Entertainment also secured a 1.2 trillion-won investment from Saudi Arabia's Public Investment Fund and Singapore's Pwarp Investment PTE in January. It was the largest overseas investment raised by a South Korean content production firm.

Kakao is the operator of KakaoTalk, South Korea's biggest mobile messenger, while Kakao Entertainment is well known for popular services for web comics, novels, and movie and TV series production studios, as well as K-pop record labels and an artist management business.

Shares of SM Entertainment were trading at 147,000 won as of 9:55 a.m. on the secondary KOSDAQ, up 13.3 percent from the previous session.

SM also released a statement to express its support for Kakao's announcement of a tender offer, calling it the "best partner."

"Unlike Hybe seeking to take over SM's board of directors through a hostile merger and acquisition, Kakao is the best horizontal and strategic partner for the successful implementation of the 'SM 3.0' vision as it respects SM's own tradition and identity, and will ensure autonomous and independent management of the company, as well as the continuous and independent activities of SM artists," the statement said.

It added SM expects to see its intellectual property business expand infinitely by reinforcing its platform-related capacities through the partnership with Kakao.

The "SM 3.0" vision unveiled by the company last month is centered on establishing multiple production centers and labels, as well as seeking more business opportunities from the intellectual property rights of its artists.


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