Hive "SM, Terminate Kakao Business Partnership Immediately"

General Producer Lee Soo-man (right) and Bang Si-hyuk, Chairman of HYBE

HYBE has urged SM Entertainment (hereinafter SM) to immediately terminate the business cooperation agreement signed with Kakao.

On the 6th, HYBE sent a letter to SM containing follow-up measures in response to the court's recent injunction prohibiting SM from issuing new shares and convertible bonds.

On the 3rd, the Seoul Eastern District Court (Presiding Judge Kim Yoo-sung) ruled in favor of former executive producer Lee Soo-man in a provisional injunction request to block Kakao's paid-in capital increase and convertible bond issuance. As a result of the court's decision, Kakao's acquisition of a 9.05% stake in SM has been abruptly halted. This has placed HYBE, the largest shareholder in the SM acquisition battle, in a favorable position.

As follow-up actions to this decision, HYBE demanded that SM ▲ refrain from any acts contrary to the injunction ruling ▲ immediately terminate investment contracts such as the new share subscription agreement and convertible bond subscription agreement ▲ immediately terminate the business cooperation agreement with Kakao ▲ withdraw recommendations for director candidates nominated by Kakao and cancel the agenda for their appointment at the shareholders' meeting.

“Acts contrary to the injunction ruling” include notifying accounts for payment of new shares or convertible bonds, receiving payments, electronic registration of stocks or convertible bond rights, issuance of certificates, and filing for registration.

HYBE argued that this injunction decision also constitutes grounds for termination of the new share subscription agreement and convertible bond subscription agreement, thereby granting SM the “right to immediately terminate the investment contracts.” Accordingly, HYBE requested the SM board of directors, which has a fiduciary duty to SM, to promptly exercise this termination right under the investment contracts, warning that any delay or arbitrary alteration would also constitute an illegal act.

HYBE explained that the “business cooperation agreement” signed between SM and Kakao has become impossible to conclude due to the court’s injunction ruling, thus SM has also acquired the right to terminate the contract. Furthermore, based on provisions within the business cooperation agreement, if the related transaction is not concluded, SM can withdraw recommendations for director candidates nominated by Kakao. Based on this, HYBE demanded that SM exercise the right to withdraw recommendations for Kakao’s nominated director candidates.

A HYBE representative stated, “This business cooperation agreement contains clauses unfavorable to SM and advantageous to Kakao. We have demanded that the current board of directors fulfill their fiduciary and duty of loyalty to SM by actively exercising the termination rights under this agreement acquired by SM.”

They added, “Since this is an opportunity for SM to be relieved from illegal investment contracts and unfavorable business cooperation agreements, failure to comply with or violation of these follow-up requests would constitute a deliberate breach of trust that results in the forfeiture or deprivation of SM’s significant rights.” HYBE requested the SM board and individual directors to provide their stance on implementation, plans, and schedules by March 9.

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