Kakao launches tender offer to win controlling stake in SM Entertainment

• Published date: 07 March 2023
• Publication title: The Korea Times

Kakao has launched its own tender offer Tuesday, aiming to acquire an additional 35 percent stake in SM Entertainment. It is a major counterattack move by the big tech against HYBE, following HYBE's failure to acquire its targeted stake of SM through its tender offer that ended at the end of last month.

If Kakao's tender offer succeeds, the IT conglomerate will become the largest shareholder of SM Entertainment with a 39.91 percent stake, while also winning the management rights of the company. HYBE will then be pushed back to the second-largest shareholder with its 19.43 percent stake.

According to a regulatory filing by Kakao and its entertainment subsidiary Kakao Entertainment on Tuesday, the two companies plan to purchase a total of 8.33 million shares, or a 35 percent stake in SM Entertainment, through the tender offer at the price of 150,000 won ($115) per share. This means that Kakao will inject up to 1.25 trillion won to acquire the majority stake.

As the offer will be valid from Tuesday to March 26, shareholders wanting to sell their shares to Kakao can register themselves to the tender offer through Korea Investment and Securities.

Kakao's tender offer price is more than 25 percent higher than HYBE's last tender offer price of 120,000 won in February. It is also 14.5 percent higher than 130,100 won, which was Monday's closing price for SM.

With the tender offer announcement made to the public in early Tuesday, the stock price of the entertainment company founded by Lee Soo-man soared to 149,200 won at around 10:30 a.m. during Tuesday's trading session, the all-time high since its listing on the tech-heavy Kosdaq in 2020. It ended at 149,700 won, a 15.07 percent increase from the previous session, at Tuesday's closing.

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The headquarters of Kakao Entertainment located in Seongnam, Gyeonggi Province / Yonhap

SM Entertainment founder Lee Soo-man, left, and HYBE Chairman Bang Si-hyuk / Courtesy of SM Entertainment and HYBE

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HYBE and Kakao have been in a tug-of-war for the management rights of SM Entertainment since early this year. In January, Kakao and the current management of SM formed a deal to strengthen their strategic partnership. Under the deal, Kakao was to acquire a 9 percent stake through issuing of new shares and convertible bonds. Yet, SM...