HYBE Acquires Stake In SM Entertainment, Creating K-Pop Powerhouse
K-pop powerhouse HYBE, which manages the biggest boy band in the world, BTS, acquired a 14.8% stake in its biggest rival SM Entertainment on Feb. 22, thus becoming SM’s largest shareholder.
The purchase makes good on HYBE’s agreement, announced Feb. 10, with SM’s founder Lee Soo-man to buy the shares for $335.8 million by March 6. And it also comes with a certain amount of drama, as some have characterized the buy-in as the first step of a hostile takeover, which HYBE denies.
At the time, Lee’s stake in SM was 18.46%, according to the Yonhap news agency. The rest of Lee’s stake will go to HYBE sometime this year. In addition, HYBE has offered to buy the stakes of other shareholders in a tender offer for the purpose of gaining a 40% stake in the end.
The South Korean entertainment industry is watching the deal carefully since HYBE’s purchase would make it the single most powerful force in K-pop. In the third quarter of 2022, SM and HYBE together accounted for 70% of Korea’s domestic music revenue and 89% of the performance market.
In addition to BTS, HYBE represents Seventeen, Tomorrow X Together, Enhyphen and Le Sserafim, while SM handles EXO, Red Velvet, NCT, aespa and many others. HYBE’s early move to acquire as much of a stake as possible seems to be with an eye toward the SM shareholders meeting, which will take place March 31.
In a message, HYBE CEO Park Ji-won assured SM employees, fans and shareholders that HYBE would stick to SM’s current growth strategy, which includes creating a production and label system and using its artists’ IP rights for products other than music.
Because HYBE has more global know-how and connections through its purchase of Ithaca Holdings and other overseas entertainment companies, Park says it can help SM advance to the international stage. Nevertheless, SM’s management has characterized HYBE’s move as a hostile takeover, which HYBE denies.
HYBE has indicated it would replace SM’s current management in the wake of a royalty fee and tax evasion scandal involving Lee’s consulting firm that prompted Lee to leaved the company’s management. HYBE, on Feb. 24, asked that it be “appointed the voting rights of minority shareholders” ahead of the general meeting, presumably in a bid to amend SM’s Articles of Incorporation, according to Koreaboo.com.
In retaliation, the CFO of SM, Jang Cheol-hyuk, posted a video online explaining how HYBE’s scheme would lead to its “monopoly power in K-pop,” according to the Los Angeles Times. Jang also believes that once HYBE solidifies its position within SM, it will increase ticket prices and downgrade SM’s artists in relation to HYBE’s within the organization.
The beef has now developed to include another major Korean company, Kakao Entertainment, which subsequently signed a contract with SM for exclusive rights to distribute SM’s music, as well as “the preemptive right to purchase new shares in SM,” according to the Korea Times.
HYBE responded to the news by saying it would take any legal actions necessary to cancel the deal, which HYBE claims would hurt ordinary shareholders. SM denied that it would “raise investment by issuing new shares through a third-party allotment.”
To muddy the waters further, another leading entertainment company, CJ ENM, announced that it had decided not to acquire shares of SM after rumors circulated that it wanted a stake in the company as well.