Kakao becomes SM's 2nd largest stakeholder

Two companies seek synergy in global business

Logos of SM Entertainment and Kakao

Kakao has become SM Entertainment's second largest shareholder, venturing into one of the biggest tech and entertainment alliances in South Korea.

IT conglomerate Kakao announced Tuesday that it has acquired a 9.05 percent stake in SM Entertainment. SM Entertainment is one of the nation's biggest K-pop agencies, home to big names like Exo, Red Velvet, aespa and NCT.

The latest partnership comes in a move to join force and secure competitiveness amid the burgeoning of K-pop and Korean entertainment in the global market.

Kakao made the investment in part by acquiring SM's newly issued stocks through third-party paid-in capital increases and the rest through convertible bond acquirements.

The total value of Kakao's investment into SM made through bond acquirements amounts to around 217.15 billion won ($17.25 million won). This makes Kakao the second-largest shareholder of SM Entertainment.

Kakao said it signed a tripartite business agreement with SM and Kakao Entertainment, the IT giant's entertainment and culture arm.

Under the deal, the three firms will be collaborating on various levels with the joint goal of leading the expansion of K-pop and Korean culture and its reputation in the global market.

Based on the powerful network and partnerships the two firms have each built outside of Korea, Kakao Entertainment and SM Entertainment will embark on a new global management business. The two firms will make joint efforts, such as holding global auditions, to secure their competitiveness in the intellectual property field.

The alliance will extend further to all fields of the music industry, including album and song production, distribution and more.

In Tuesday's statement, Kakao's Chief Investment Officer Bae Jae-hyun said, "Through the partnership, we anticipate to contend together in the competitive global music and content market, while bolstering each other in taking K-content into the global mainstream." He added that they would "collaborate on all levels to contribute in pushing through the global reach of K-culture."

In a separate press release made on the same day, SM's co-CEOs Lee Sung-soo and Tak Young-jun was quoted as saying, "through this strategic alliance with Kakao, we expect to gain a strong drive for growth in becoming a leading global entertainment company."

The latest deal comes days after SM Entertainment announced on Friday a new plan for music production and management as part of its "SM 3.0" vision. The new system involved the introduction of multiple music production lines and the establishment of independent labels both in and out of the company.

According to SM, it plans to use the new money to push forward with its new vision by aggressively investing in the global music publishing business, expanding its existing global business as well as acquiring other labels.

By Choi Ji-won(jwc@heraldcorp.com)