Kakao will not sell stake in SM Entertainment

Kakao plans to keep its stake in SM Entertainment and denied rumors that it planned to displace the K-pop agencies top executives.

SM Entertainment's headquarters in Seongdong District, eastern Seoul [YONHAP]

Kakao won't sell its stake in SM Entertainment.

It will also not displace any of the company's top executives, the K-pop agency said in a statement Monday aiming to calm market speculation.

“As stated in Kakao’s electronic disclosure on Jan. 29, rumors about Kakao selling its stake in SM Entertainment are not true,” SM Entertainment said, referring to rumors about the company’s strained relationship with Kakao that have been brewing for several weeks. “Several media outlets reported that top-level executives might be replaced, but Kakao is not considering doing so — we have effectively communicated with Kakao regarding the matter.

“Kakao, Kakao Entertainment and SM Entertainment are opting for co-growth and to collaborate on businesses to create synergies, even to this moment,” SM Entertainment emphasized.

SM Entertainment also said that its subsidiary Kreation Music Rights' (KMR's) acquisitions of smaller companies in 2023 were conducted “properly” without inflating those companies’ values.

KMR was established in 2023 to spearhead SM Entertainment’s multilabel system via which it buys smaller K-pop agencies and allows them to pursue their respective music styles with the backing of a larger portfolio.

KMR acquired 10x Entertainment — which currently represents only one artist, singer Kim Woo-jin — for 2.2 billion won ($1.6 million).

Media reports speculated that SM Entertainment had overvalued the company and that the move was the underlying cause behind Kakao’s eventual probe into the K-pop agency.

“Artist Kim Woo-jin was a trainee at SM Entertainment and a former member of the boy band Stray Kids,” SM Entertainment said. “KMR believed that Kim held growth potential and decided to acquire 10x Entertainment at an appropriate level through discounted cash flow.”

The K-pop agency plans to propel its businesses on various publishing services through 10x Entertainment.

The company also acquired music publisher The Hub for 6.3 billion won. The Hub, established in 2020, was considered to have net assets of 200 million won.

“The acquisition amount was calculated using the market approach that is applied to the valuation of publishing companies,” the agency said. “The calculated value was deemed reasonable given typical cases in the industry and recent growth trends.”

The company also gave details of Kakao’s probe in its financial statements. The investigation was launched in beginning of December due to Kakao’s suspicion that the K-pop label had closed deals without its consent. Several executives’ PCs were confiscated for digital forensics.

“We had considerable doubts and regrets regarding [Kakao’s] investigation methods, but we cooperated to the best as we can to help the company’s understanding regarding our situation,” the firm said.

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