SM founder Lee Soo-man joins hands with Hybe to counter SM’s Kakao partnership

Picture of Hybe Chairman Bang Si-hyuk and SM Entertainment founder Lee Soo-man (Yonhap)

SM Entertainment’s founder and former producer Lee Soo-man joined hands with Hybe in the latest development of an internal business management feud between Lee and the co-CEOs of SM.

Hybe, the Korean entertainment agency that houses supergroup BTS, announced Friday that it has signed a deal with Lee Soo-man to buy 14.8 percent of his SM shares at 422.8 billion won ($334.28 million).

Lee Soo-man was the largest shareholder of SM Entertainment with an 18.46 percent share.

While this deal already makes Hybe the largest shareholder of SM Entertainment, Hybe is also attempting to buy off minority shareholders’ shares via a tender offer.

“SM Entertainment played the main role of expanding the K-pop industry over to Japan, China, Southeast Asia and the Middle East, beginning with BoA topping the Japanese Oricon album chart. Hybe played an important role in making K-pop popular with its global superstar BTS. With this takeover, we hope to become a game changer in the global music industry by making use of such global capability of both companies,” Hybe said in a press release on Friday.

Prior to signing the share purchase agreement, Hybe Chairman Bang Si-hyuk and Lee shared their thoughts on the future of K-pop and formed a consensus.

Bang expressed his respect for Lee’s accomplishments in fostering K-pop into an industry, and his will to realize the global vision that Lee had laid out.

“Because Lee Soo-man laid the red carpet for followers in the industry, we could only do better. Hybe agrees with Lee on his strategy to establish the metaverse, a multi-label business structure and sustainable campaigns to save the Earth. With Hybe’s capacity, we will continue to raise K-pop’s standing in the global market,” Bang said.

Hybe also plans to put efforts into restructuring the business management structure of SM Entertainment.

"We are on the same page on the need to improve SM’s business management structure. We hope to contribute to reconstructing it as we have a transparent system, and strategically operate multilabels and fandom platforms," said Hybe.

This week, the feud between Lee Soo-man and SM Entertainment deepened with Lee calling out the process of making Kakao the company's second-largest shareholder an “act of illegality.”

On Tuesday, SM Entertainment and South Korean tech giant Kakao announced a partnership that involved Kakao acquiring a 9.05 percent stake in the K-pop powerhouse.

Lee Soo-man opposed the partnership, making his stance clear via a legal representative.

“SM Entertainment is currently going through a business management dispute between the largest shareholder Lee Soo-man and alliance partners clothed as a shareholders’ private equity fund. Therefore, it is an act of illegality against commercial law and article of association for the SM board of directors to issue new stock and convertible bonds to a third party,” Lee Soo-man said through law firm Yoon & Yang.

The statement added that it would hold them responsible for breach of business laws.

In response, SM's co-CEOs Lee Sung-soo and Tak Young-jun announced Friday that their partnership with Kakao is only to speed up the SM 3.0 project, and that it has nothing to do with the business management dispute as Lee claims.

They called out Hybe’s buyout of Lee’s SM shares a “hostile merger and acquisition.”

“This M&A that came right after we announced SM 3.0 obliterates the efforts and values that SM and its artists have worked for. We want to make it clear that all our employees and artists oppose such a hostile M&A,” they said in a press release on Friday.

Last week, SM’s co-CEOs had announced that the company had terminated its contract with Lee Soo-man as producer, and laid out the blueprint for a new chapter under a new strategy called “SM 3.0.”

SM 3.0 involves establishing five different production centers and independent music labels to diversify production. This is a total departure from the former system, in which Lee was in charge of the entire music production process.

The feud between the two parties is likely to attribute to raising SM’s stock price.

“None of them has acquired enough shares to be on the safe side of having business management power. As the competition to acquire more shares than the other is likely to continue, it will have a positive effect on SM’s stocks for the short term,” said Kim Ha-jung, a researcher from Daol Investment & Securities.

By Hong Yoo(yoohong@heraldcorp.com)