Categories: NEWS
By Published On: March 13th, 2023

HYBE Halts Acquisition Of SM Entertainment… What To Expect From The SM-Kakao Alliance

HYBE announced on the 12th that it has decided to halt the process of acquiring SM Entertainment’s management rights. At the same time, it has reached an agreement with Kakao on collaborative measures related to platforms.

Since last month, HYBE had been focused on acquiring SM Entertainment. It acquired a 14.6% stake in the company owned by former SM producer Lee Soo-man and became its largest shareholder, aiming to exercise stable management control through a public purchase of shares at KRW 120,000 per share. However, the situation changed when the price of SM’s shares rose sharply, resulting in the failure of the public purchase of shares. Kakao then declared that it would jointly purchase a 35% stake in SM Entertainment with its subsidiary, Kakao Entertainment, at KRW 150,000 per share, for a total of KRW 1.25 trillion. This announcement sparked a hotly contested “chicken game” in the market.

As a result, the price of SM’s shares soared to KRW 150,000, and both Kakao and HYBE were faced with the need to find solutions, including a second round of public purchases of shares. Regardless of who becomes the owner of SM, it is a case of the “winner’s curse.” With the management dispute intensifying and both sides showing worrying signals from financial regulators, negotiations began on the 10th. Eventually, HYBE withdrew from the competition for SM’s management rights, and the “war of nerves” came to an end.

As the business areas of HYBE’s allies Naver and Kakao overlap, it is important to manage and maintain their cooperative relationships. They also need to resolve issues such as monopolies in fan platforms and music distribution, such as the Weverse DearU bubble controversy.

However, there are high expectations. Unlike HYBE, Kakao does not have an entertainment background, which means that SM’s unique autonomy and independence can be preserved. This ensures that SM’s identity and worldview, which have been built up over the past 30 years, can be safely maintained. It is a factor that can prevent core fandom and artist departure risks that have grown within SM’s culture. Additionally, since Kakao is a leader in the IT industry, combining SM’s IP and Kakao’s IT can create powerful synergies. For SM, this can provide a foundation for achieving change and innovation based on SM 3.0 and leapfrogging back to the top of the industry. For Kakao, it can enhance its global competitiveness through cooperation with SM and HYBE.