HYBE vs. Kakao: A Quick Update
After the overly spotlighted nip and tuck battle, we can finally say that somebody has the upper hand. HYBE.
Things moved fast after I sent out the last newsletter about the corporate battle between HYBE and Kakao.
On the 28th of February, it seemed that HYBE lost its battle when its tender offer to buy SM Ent. failed. However, on March 3rd, the tide turned for HYBE when the South Korean court blocked SM Entertainment from issuing new shares.
It’s confusing, so let’s review what happened from the beginning focusing only on the financial aspect.
2/7/23
Kakao and SM Ent. signed a business deal. Kakao became the second-largest shareholder of SM Ent., by buying 9.05% of the company (1.23 million newly-issued shares and 11.4 million convertible bonds).
2/8/23
Lee Soo-man, the founder of SM Ent., filed for an injunction against the issuing of new shares and convertible bonds, saying that it’s an “illegal act without the consent of the largest shareholder.”2/10/23
HYBE announced that it will acquire Lee Soo-man’s 14.8% stake in SM. Ent. HYBE made a tender offer1 to buy SM Ent. shares at 120,000 KRW.
2/22/23
HYBE became the largest shareholder of SM Ent. by acquiring a 14.8% stake from Lee Soo-man. HYBE also got a put option for the remaining 3.65% that Lee Soo-man still owns.
2/28/23
HYBE’s tender offer failed as the price for SM Ent. shares rose above the tender offer price. Also, an unknown corporation bought a large number of shares. HYBE requested an investigation into the large purchase deal if it’s market manipulation.3/3/23
The court approved the injunction filed by Lee Soo-man. It ruled that the issuing of new shares and convertible bonds isn’t legit, since SM didn’t have a compelling need for financing, etc.
Now we can finally say that somebody has the upper hand, and it’s HYBE. HYBE currently secured at least 19.54% of SM Ent. including the put option for 3.6% that Lee Soo-man still owns.
What will happen now?
There’s a chance that HYBE will partner with Kakao in certain regards. It’s still possible for Kakao to make a tender offer. The publicity battle to gain shareholders’ support will continue until the SM Ent. shareholder meeting scheduled on the 31st of March.
Actually, the publicity battle is a bit more intriguing than the financial aspect. Every party has been trying to convince the shareholders and the public of their grand plans for the entire K-pop industry, the artists, and the fans. However, in general, K-pop fans disapprove of both companies.
In the next newsletter, I will write about the past, present, and future of all three companies, as I promised. Although Kakao is pretty much out of the picture now, I will still take a close look at the company since I have a feeling that I will mention it a lot in the future anyway.
“an occasion when a company offers to buy its own or another company's shares from existing shareholders at a particular price” according to Cambridge Dictionary.