Grand bargain ends HYBE’s run at SM Entertainment

HYBE is walking away from the battle for SM Entertainment after an 11th hour meeting on Friday with representatives from the target and the rival for the asset.

In the grand bargain, the agency will get at very least some sort of “platform” deal with SM Entertainment.

“HYBE is halting the acquisition process for SM Entertainment from March 12,” the company said in a statement. The intense competition has raised the acquisition price “above the appropriate range,” and the continued battle could “further stir up the competition.”

Both tangible and intangible costs of the post-merger integration process were taken into account, HYBE said.

The company currently owns 15.78 percent of SM Entertainment. It acquired 14.8 percent from SM Entertainment founder Lee Soo-man and then purchased 0.98 percent in tender offer at 120,000 won ($92) a share.

Continued efforts to purchase SM Entertainment shares could negatively affect shareholder value, HYBE said.

The announcement comes as Kakao continues to make a run at SM Entertainment and after HYBE’s own efforts failed due to a low price.

Kakao is offering to purchase 35 percent of SM Entertainment in the open market via a tender offer at 150,000 won apiece. The offer will be valid until March 26, and on Sunday the company confirmed that it would stick to the plan.

It initially sought to buy 9.05 percent of SM Entertainment and enter into a strategic alliance with the agency for music production and distribution. But the attempt failed after a court issued an injunction stopping SM Entertainment from selling of new shares to Kakao.

Kakao and Kakao Entertainment already own a 4.9 percent stake in SM Entertainment.

HYBE has not decided what it will do with the shares it currently owns. It may hold onto the shares or sell them to buyers, including Kakao.

According to local reports, HYBE, Kakao and SM Entertainment met on Friday and came to some sort of agreement about efforts to acquire SM Entertainment. HYBE would not confirm the meeting.

“Kakao and Kakao Entertainment respects HYBE’s decision to suspend its plan to take control of SM as per the settlement between Kakao and HYBE,” Kakao said on Sunday.

Kakao said it will guarantee the independent operation of the agency with respect to artists and fans and speed up global growth and the SM 3.0 project, which involves liberating the business from the influence of the founder.

Neither Kakao nor HYBE clarified the areas in which they will cooperate.

“SM Entertainment respects and welcomes HYBE’s decision to suspend its plan to take control of SM management,” said the company. “We will continuously raise corporate value for shareholders and expand shareholder return policies.”

SM Entertainment’s annual general meeting of shareholders will take place on March 31.

If Kakao successfully acquires SM Entertainment, “it will be able to achieve 3.5 trillion won in revenue and 370 billion won in operating profit in 2023, and 4.4 trillion won in revenue and 550 billion won in operating profit in 2024,” said Kim Hyun-young, an analyst at Hyundai Motor Securities in a report last on March 8.

Kakao’s revenue in 2023 was 2.56 trillion won and its operating profit 250 billion won.

The boost in earnings is expected to help the planned IPO of Kakao Entertainment, Kim added.

Shares of SM Entertainment skyrocketed amid the takeover battle between HYBE and Kakao.

SM Entertainment traded at around 90,000 won when Kakao announced plans to acquire a stake in SM Entertainment early last month. But the price jumped almost 80 percent in a month, peaking at 161,200 won on March 8.

BY JIN MIN-JI [jin.minji@joongang.co.kr]