[SM Management Battle] Stock Price Surpasses 120,000 Won with Revelations... Continuous Twists Between HYBE and Kakao

Intense Public Opinion Battle Over Shareholder Proposals and Exposures
SM's Stock Surge Raises Concerns for HYBE
Other Entities' Large Purchases of SM Shares Also Draw Attention

[Asia Economy Reporter Park So-yeon] The battle for management rights at SM Entertainment (SM) is becoming increasingly intense. The turning point in this management rights war will be around early March, when the provisional injunction request to ban SM's new shares and convertible bonds (CB) issuance by Lee Soo-man, and the results of HYBE's public tender offer for SM shares, are announced. The public opinion battle influencing the overall situation is fierce.

Will the tide turn against HYBE?

On the 15th, when HYBE proposed a shareholder proposal to appoint a new board of directors and auditors at SM, Lee Sung-soo, co-CEO of SM and a key figure in the anti-Lee Soo-man camp, responded on the 16th with a ruthless expos? raising offshore tax evasion allegations against his uncle-in-law Lee Soo-man. HYBE quickly rebutted, saying these claims were not mentioned in the stock transfer agreement with Lee Soo-man.

Ultimately, in this SM management rights war likely to evolve into a 'HYBE vs. Kakao' showdown, Kakao has not directly intervened. This is because involvement could be seen as aiding Lee Soo-man's injunction request. Instead, Kakao appears to be trying to boost SM's stock price by leaking counter public tender offer cards against HYBE's tender offer. This is a strategy to shake HYBE's tender offer process.

In fact, red flags have increased around HYBE's public tender offer for SM shares. Amid the fierce battle between HYBE and SM's current management, rumors have flooded the stock market about CJ ENM entering the SM acquisition battle, SM buying back its own shares, SM selling valuable subsidiaries, and Kakao's counter tender offer. As a result, SM's stock closed at 122,600 won on the 15th, surpassing HYBE's tender offer price of 120,000 won. The closing price on the 16th was 131,900 won, removing any incentive for small shareholders to accept HYBE's tender offer (responding to an over-the-counter tender offer requires paying up to 22% capital gains tax).

Notably, on the 16th, while individual, institutional, and foreign investors all sold SM shares, a single account of an 'other corporation' purchased 650,000 shares (2.73%). If this other corporation is Kakao, a Kakao affiliate, or a pro-Kakao group, it means they are accumulating SM shares while destabilizing HYBE's tender offer. Although it cannot be confirmed if it is the same other corporation, this entity bought 49,453 shares on February 2, 100,446 shares on the 3rd, 32,469 shares on the 6th, and 174,491 shares on the 7th. The SM acquisition battle, which seemed likely to end easily with a HYBE-Lee Soo-man alliance victory, is taking an unexpected turn.

Will SM's expos? sway public opinion?

Co-CEO Lee Sung-soo, upon HYBE's disclosure of SM's new board lineup and governance improvement plan, immediately raised offshore tax evasion allegations against his uncle-in-law Lee Soo-man on his YouTube channel. Lee Sung-soo exposed various suspicions related to Lee Soo-man, including ▲ offshore tax evasion allegations ▲ demands related to 'tree planting' lyrics ▲ reasons behind aespa's comeback delay. Of the 14 items he had previewed, four were revealed that day. Lee Chang-hwan, CEO of Align Partners Asset Management (Align), said, "Today's announcement is the first round, and next week will be even more interesting," adding, "We will disclose not only Lee Soo-man-related content but also IT monetization strategies that can create synergy between Kakao and SM, as well as global investment and content platform strategies." This is a tactic to gain an advantageous position in the public opinion battle ahead of the tender offer and shareholders' meeting.

Lee Sung-soo entered SM with the help of his uncle-in-law Lee Soo-man and rose to co-CEO, but it is known that due to his term ending in late March, worsening internal sentiment over Lee Soo-man's overreach, and pressure from Align and others, he has taken on the role of attacking his uncle-in-law. The current SM management, including him, announced plans to reorganize the board at the March shareholders' meeting into three inside directors, three outside directors, and one other non-executive director. Lee Chang-hwan of Align was nominated as the other non-executive director. It is also reported that they are preparing for the reappointment of himself and co-CEO Tak Young-joon. The National Tax Service has also begun fact-finding regarding Lee Soo-man's offshore tax evasion allegations.

SM's soaring stock price: Is the tender offer doomed?

Amid ongoing expos?s and rebuttals, SM's stock price has been hitting 52-week highs daily. On the 16th, it surpassed the 120,000 won level and entered the 130,000 won range, exceeding HYBE's tender offer price of 120,000 won by a wide margin.

Although there is still plenty of time until HYBE's tender offer deadline on March 1, judging by the stock price movements and large purchases by other corporations, it seems unlikely that HYBE's current offer price will succeed. Of course, HYBE may raise the tender offer price. According to HYBE's tender offer report, they can submit amended reports until the end of the tender offer period to change conditions such as the purchase price.

However, this would increase HYBE's financial burden. The price for the 25% stake in SM that HYBE plans to acquire amounts to 714.2 billion won. Considering the acquisition funds for Lee Soo-man's 14.8% stake (422.8 billion won), it may be difficult to inject more capital.

While the intrinsic value of the company may be less meaningful amid the management rights dispute, the prevailing analysis is that SM's current stock price has entered an overvalued range. Based on 130,000 won per share, SM's market capitalization approaches 4 trillion won. HYBE's market capitalization is less than 8 trillion won. SM recorded operating profits of about 87 billion won last year, while HYBE's operating profits were 240 billion won.

A pride battle between Bang Si-hyuk and Kim Beom-su?

In the capital market, the SM management rights war is ultimately seen as a pride and capital power battle between Kim Beom-su, head of Kakao, and Bang Si-hyuk, chairman of HYBE's board. There are many variables. Depending on the outcome of the provisional injunction lawsuit filed by Lee Soo-man against SM, the basic shareholding percentages that HYBE and Kakao can secure will differ. HYBE has secured Lee Soo-man's 14.8% stake in SM. Kakao may secure 9.05% depending on the injunction result, or may not.

The subsequent situation varies according to four scenarios. First, if HYBE fails in the tender offer and Lee Soo-man's injunction is dismissed, it is the worst case for HYBE and the best for Kakao. In this case, the 'money battle' between the two is likely to decide the outcome. Especially, Kakao could attempt a backdoor listing of Kakao Entertainment through counter tender offers and share acquisitions.

Next, if HYBE fails in the tender offer but Lee Soo-man's injunction is granted, HYBE is in a favorable position. However, in the shareholders' meeting vote, they must win the 'votes' of small shareholders and the National Pension Service.

If HYBE succeeds in the tender offer and Lee Soo-man's injunction is dismissed, the first-largest shareholder HYBE and second-largest shareholder Kakao will engage in a fierce battle, potentially raising the stakes further. Lastly, if HYBE succeeds in the tender offer and Lee Soo-man's injunction is granted, HYBE's victory is likely to be a straightforward one.

Important supporting players in these four scenarios are Com2uS and the currently unidentified other corporation. Com2uS, which acquired a 4.2% stake in SM last October, stated in a conference call on the 10th that it would exercise voting rights if necessary. Com2uS is known to be closer to Lee Soo-man's side. The other corporation, which purchased 2.73% of SM shares in a single day on the 16th, is also attracting attention regarding whose side it will take.

A private equity expert specializing in mergers and acquisitions said, "Judging by recent stock price trends, it seems someone is working on a structure that makes it difficult to respond to the tender offer," adding, "This will be a battle where one side must suffer a fatal blow to end."

This content was produced with the assistance of AI translation services.