Kakao's acquisition of SM Entertainment leads to trouble [REWIND 2023]

Korean tech giant Kakao acquired a 39.9 percent stake in K-pop powerhouse SM Entertainment for $963 million in March. The deal aimed to strengthen the company's entertainment sector, but managed to put Kakao into a downward spiral.

Kakao founder Kim Beom-su speaks at the company meeting held in Kakao's headquarters in Seongnam, Gyeonggi, on Dec. 11. [YONHAP]

Korean tech giant Kakao acquired a 39.9 percent stake in K-pop powerhouse SM Entertainment for $963 million in March. The deal aimed to strengthen the company's entertainment sector, but managed to put Kakao into a downward spiral due to its engagement in illegal stock manipulation during the purchase process.

Kakao and K-pop agency HYBE behind BTS were locked in a takeover bid over SM Entertainment earlier this year, each opting to buy up more shares of SM in tender offers.

Kakao came out as the winner by becoming SM Entertainment’s largest shareholder with a combined holding of 39.9 percent — but it came at a price.

The allegation was triggered by HYBE requesting Korea’s financial regulator to investigate Kakao’s “abnormal” purchase of SM Entertainment shares in February.

The Financial Supervisory Service (FSS) began probing Kakao’s alleged stock manipulation in its purchase of SM Entertainment shares, with the speculation that it artificially injected 240 billion won into the market to drive the price of SM shares higher than those of its competitor HYBE.

FSS raided the offices of Kakao founder Kim Beom-su and Kakao’s Pangyo headquarters. Kim and Kakao’s top executives were referred to prosecutors for stock manipulation while its chief investment officer Bae Jae-hyun is in custody under the same charges.

The company's inner frictions were recently lambasted by a Kakao executive in a Facebook post, slamming the company for opaque decision-making processes related to some of its real estate projects and its corporate golf membership program.

Amid outlining numerous scandals, Kakao founder Kim Beom-su K vouched that he would revamp company management, stating they would "change the name of Kakao corporation" to create a new Kakao.

The move started with the naming of a new CEO to lead the company, a 48-year-old Kakao Ventures head Chung Shin-a.

Chung is the first female Kakao boss since the company was established in 2010. The move comes as part of Kakao founder Kim Beom-su's promise to completely overhaul Kakao’s management,

The company has formed an external autonomous committee to oversee management decisions from Kakao subsidiaries, having the authority to directly investigate what it deems as risks and review subsidiaries’ management procedures.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]