SM Entertainment has terminated its plan to issue new shares — a deal that would have seen Kakao Corp. buying a 9.05% stake in the company — after a court in Seoul granted a provisional injunction to block the company from issuing new shares.
The injunction, filed by SM Entertainment’s former executive producer, Lee Soo-man, prevents the company from issuing new shares and convertible bonds.
Lee, previously SM Entertainment’s largest shareholder, said the ruling by the Seoul Eastern District Court “clearly deters any illegitimate attempts by SM’s current management to influence control of the company.”
“Everything will fall into place now. We have a heavy responsibility, and SM has an exemplary governance structure and protects the rights and interests of shareholders, members, and artists,” Lee added in a statement on Friday (March 3).
In February, Lee — who has been at odds with SM Entertainment’s management for months — sold a 14.8% stake in the company to HYBE in a deal worth 422.8 billion South Korean won (approx. $325.8 million).
“Everything will fall into place now. We have a heavy responsibility, and SM has an exemplary governance structure and protects the rights and interests of shareholders, members, and artists.”
Lee Soo-Man
HYBE reportedly plans to further raise its stake in SM Entertainment, but its deal was challenged by the latter company’s plans to form an alliance with Kakao, which would give Kakao exclusive right to distribute SM’s albums and music and an option to buy new shares in SM in addition to purchasing a substantial stake.
But the court ruling on Friday prompted SM Entertainment to cancel its deal with Kakao.
In a stock exchange filing on Monday (March 6), SM Entertainment said it will no longer proceed with its plan to issue 1.23 million common shares to Kakao for a total of 111.93 billion won ($86.3 million), or 91,000 won per share.
The company also dropped its plan to issue 105.22 billion won worth of convertible bonds to Kakao, citing a court order that prohibits it from issuing new shares and bonds.
The latest developments mark a win for HYBE, allowing it to pursue a takeover of SM Entertainment.
SM’s management has slammed the takeover bid, calling it a “hostile takeover attempt,” with SM Entertainment CFO Jang Cheol Hyuk saying the plan would “cause more diverse and direct problems, including decreased diversity of artists, music and concerts.”
In response, HYBE CEO Jiwon Park had said that the combination would pave the way for “an era of change for both companies.”
HYBE has also launched a campaign last week “to protect shareholder value from inappropriate actions by the current management at SM” and to urge SM shareholders to support its planned takeover.
The campaign also includes a dedicated microsite promoting “SM With Hybe.”
On Monday (March 6), HYBE requested SM to take follow-up measures following the court’s injunction order. The measures include cancelling its business with Kakao and withdrawing Kakao’s nominee director candidate.
HYBE describes the court ruling as an “opportunity for SM to be rescued from illegal investment contracts and unfavorable business cooperation contracts.”
HYBE claimed that SM’s contract with Kakao is “unfavorable to SM as it contains provisions favorable to Kakao.”
The agency behind BTS added that it will monitor the performance of SM’s board, including their plans and schedules.
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