HYBE sells $50m stake in SM Entertainment – Music Business Worldwide

South Korea-headquartered entertainment giant HYBE has sold $50 million worth of its shares in fellow K-pop company SM Entertainment.

That’s according to a regulatory filing published by HYBE on Tuesday (May 28), which indicates that the company has sold  755,522 shares of SM Entertainment for 90,531 South Korean won per share.

The total value of the transaction, according to the filing, was 68.3 billion South Korea won, which converts to approximately $50 million at current exchange rates.

The filing noted that the shares were sold after a “resolution by the board of directors” via “an after-hours block deal” before the market opened on Tuesday.

HYBE’s shareholding in SM Entertainment has been reduced to 2.21 million shares as a result of the transaction.

According to the Korea JoongAng Daily (an English-language daily published by Korea-based media company JoongAng Group, in association with The New York Times) the shares sold by HYBE equates to a 3.2% stake in SM Entertainment, reducing HYBE’s stake in SM to 9.38%.

SM represents K-Pop stars like SUPER JUNIOR, Girls’ Generation, SHINee, EXO, Red Velvet, KANGTA, BoA, TVXQ!, NCT DREAM and aespa

HYBE originally acquired a 14.8% stake in SM from SM’s founder and former Chief Producer Lee Soo Man in February 2023 in a deal worth approximately USD $335 million.

After HYBE acquired that 14.8% stake in SM from the latter company’s founder in February last year, it revealed that it planned to acquire an additional 25.2% of SM Entertainment’s shares – which would have taken HYBE’s total shareholding up to 40% – via a tender offer to SM’s minority shareholders.

HYBE’s takeover plan fell short, however, only managing to acquire an additional 0.98% stake in SM Entertainment, raising its ownership to 15.78% (including the 14.8% stake acquired in February 2023).

Kakao / Kakao Entertainment then launched its own tender offer for SM shareholders at a higher per-share price than HYBE’s bid.

Kakao had already agreed a deal to buy 9.05% of SM in February, via the purchase of bonds and newly-issued shares. However, Lee Soo Man successfully blocked this buyout attempt in a Seoul court via an injunction.

HYBE’s attempt to buy a 40% stake in SM was met with strong resistance from SM’s management. On March 12, HYBE ended its takeover attempt of SM.

The company said in March last year that it had pulled out of the race to take control of SM Entertainment “after observing that the market ha[d] been showing signs of overheating due to competition with both Kakao and Kakao Entertainment.”

By the end of March 2023, Kakao Corp. officially became the largest shareholder in SM Entertainment, increasing its stake in SM to 39.87% from the previous 4.9% after completing its tender offer for shares in the agency.

HYBE had initially planned to divest its entire 15.78% stake in SM, but remained a shareholder of SM with an 8.81% stake.

HYBE then upped its stake in stake in SM to around 12.6% in March 2024, when it acquired 869,948 shares in SM Entertainment from SM’s founder and former Chief Producer Lee Soo Man.

Kakao is listed as SM Entertainment’s largest shareholder on the company’s investor relations site, with a 39.87% stake in SM (as of September 30, 2023).

That 39.87% stake is split across Kakao Corp which owns 20.76% of SM Entertainment and Kakao’s Entertainment division Kakao Entertainment, which owns a 19.11% stake in SM.

HYBE’s revenue for Q1 2024 came in at KRW 360.92 billion (USD $271.57 million at the average exchange rate for Q1), a 12.1 YoY drop, according to the company’s latest earnings report, released on May 2.

 Music Business Worldwide