Hive Announces "Civil and Criminal Legal Actions" Over SM and Kakao Contracts

HYBE has expressed its intention to take legal action regarding the business cooperation agreement between SM Entertainment and Kakao.

On the 24th, HYBE released a statement saying, “The convertible bond subscription agreement concluded between SM and Kakao damages shareholder interests,” and added, “A review of the legal issues contained in this contract is underway, and depending on the results, we will take all necessary civil and criminal legal measures.”

They also emphasized, “Upon reviewing the contents of this business contract, we felt a mix of surprise and concern,” and stated, “Just as SM improved its governance structure during the major shareholder stake acquisition process, we will prioritize protecting the rights of members and shareholders and resolve unreasonable parts that restrict artists’ rights one by one.”

HYBE disclosed that the contract between SM and Kakao includes provisions such as ▲SM granting Kakao priority on new shares or stock-linked securities ▲Kakao Entertainment acquiring unrestricted exclusive rights to SM’s domestic and international music content ▲Kakao Entertainment managing SM artists’ management in North and South America ▲Kakao Entertainment overseeing distribution of performances and fan meetings.

Regarding the clause that SM grants new shares or stock-linked securities to Kakao with priority, HYBE pointed out, “According to this clause, Kakao and Kakao Entertainment can continuously increase their shares by exercising priority rights to conduct third-party allotment capital increases whenever SM’s stock price falls,” adding, “This scenario cannot prevent inequality toward ordinary shareholders. If this happens, shareholders other than Kakao and Kakao Entertainment may continuously experience dilution of their share value.”

They continued, “It will become difficult to attract new strategic investors who could benefit SM, and in fact, Kakao and Kakao Entertainment will establish a foundation to easily secure management rights over SM,” they claimed.

HYBE criticized the main contents of the business cooperation agreement, saying it is difficult to view it as a ‘horizontal cooperative relationship with Kakao’ as claimed by SM, and pointed out, “Compared to the important business rights SM is handing over, the business content SM receives appears absurdly small.”

HYBE stated, “In the entertainment industry, albums and music content are the main sources of revenue for companies and artists, and the negotiation power over distribution fees varies depending on the artist’s status,” and criticized, “Entertainment companies have an obligation to negotiate to maximize the value of their artists. Through this contract, SM granted Kakao Entertainment exclusive rights to these important business rights without any time limitation.”

They added, “It has become clear that activities in North and South America will be reorganized under Kakao Entertainment’s leadership in the future,” and questioned, “Considering that SM has had superiority over Kakao Entertainment in all aspects of the North and South American market, it is doubtful whether this is an appropriate decision.”

HYBE concluded, “We believe this contract damages SM’s shareholder value, restricts the rights of SM artists, and limits the future of SM members,” and urged, “SM’s current management should halt all detailed decision-making related to this contract.”

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