Allain "Kakao SM Purchase Price Higher Than Controlling Shareholder... Historical Significance"

On the 7th, activist fund Align Partners stated that Kakao's announcement of a public tender offer of 150,000 KRW per share for SM holds great significance as it marks the first time in history that common shareholders receive a higher price than controlling shareholders when selling their shares.

Align Partners said, "Kakao supports the independent board of directors recommended by SM's management at the upcoming shareholders' meeting on March 31 (not a board formed by Kakao) and endorses the SM 3.0 strategy, which promises to transform the company into one that serves all shareholders and fans, not just specific shareholders."

They added, "If this premise holds, unlike HYBE?which, despite acquiring a 40% stake as a competitor, opposes SM-recommended directors and seeks to reconstitute the board with its own nominees?Kakao, which also acquired 40%, is judged to pose a lower risk of conflicts of interest from a shareholder value perspective. Especially, Kakao's core business is a platform business, unlike HYBE."

However, Align's position is that if Kakao fills SM's board with its own personnel and operates SM according to Kakao's strategic objectives in the future, Kakao should acquire 100% of SM's shares to avoid conflicts of interest between the shareholders of both companies.

The public tender offer price (150,000 KRW per share) was evaluated positively from the shareholders' perspective. This is because it provides an opportunity to sell at a significantly higher price than HYBE's previous tender offer price of 120,000 KRW. The 150,000 KRW per share is 25% higher than the 120,000 KRW price at which the former largest shareholder, Lee Soo-man, sold his shares to HYBE.

Align emphasized, "This is the first case in the history of the Korean stock market where common shareholders sell at a higher price than controlling shareholders, which is very significant."

They continued, "This historic event was possible because SM's current management and employees, under a strong owner system, courageously decided to reform governance issues related to SM's major shareholders that have existed for decades and to establish an advanced and independent board that works for the company and all shareholders, not specific shareholders, despite the great difficulty."

They also said, "From the perspective of the development of Korea's capital market, this is very meaningful and should be supported. We believe that SM's governance issues have been virtually resolved by the current management."

Align expects that if SM's management can execute the SM 3.0 strategy as planned, significant corporate value enhancement will be possible within three years. Align stated, "We believe that SM's content combined with Kakao's platform and technology can achieve higher corporate value than now, and we will not participate in this tender offer but will remain a friendly shareholder to support SM management's execution of the SM 3.0 strategy."

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