[SM Management Battle] "We Create Greater Synergy" Intensifying Fierce Off-Stage Verbal Clash

Namwoo Lee Criticizes HYBE: "It's Like Man Utd Acquiring Tottenham"
Gangnamgyu Points Out, "Has Kakao Ever Properly Exported Content?"

As the fierce battle for management rights over SM Entertainment (SM) between HYBE and Kakao escalates into an intense confrontation, off-the-record debates among experts directly and indirectly related to both sides are also intensifying. Each side promotes that they possess greater capabilities for SM's long-term development while highlighting the opponent's weaknesses to emphasize the problems with the SM acquisition. Ahead of the shareholders' meeting to form the board of directors in March, the off-the-record battle of logic to win votes is becoming heated.

Namwoo Lee: "Don’t Worry About Size, Take Care of Shareholders First"

Namwoo Lee, a professor at Yonsei University Graduate School of International Studies and a nominee for SM’s outside director recommended by Align Partners Asset Management (Kakao alliance), recently targeted HYBE’s SM acquisition on social media, saying, "HYBE’s acquisition of SM is like Manchester United (Man U) acquiring Tottenham, and HYBE shareholders should oppose it."

This is a criticism that HYBE has expanded like a chaebol using other people's money. Professor Lee likened it by saying, "HYBE already has a lot of debt (loan deposits), and Chairman Bang Si-hyuk acquiring SM through borrowing or capital increase is like Man U trying to buy Tottenham or Man City with other people's money." He pointed out that such behavior follows a third-rate chaebol business model that destroyed corporate value in the past, like Kumho Group, Dongbu, Hanbo, and Ssangyong, ultimately hurting their shareholders and employees.

He continued, "HYBE should not worry about its size but take care of current shareholders first." In particular, maintaining the simultaneous listing of both companies after HYBE acquires its competitor (SM) poses governance issues, and there is a possibility that both companies could be damaged.

Earlier, in a post titled ‘Why the SM Outside Director Candidates We Recommended Are Outstanding,’ he emphasized that the Kakao side’s director candidates are carefully selected qualified individuals for SM’s long-term development. Professor Lee stated, "The essence of the SM issue is not a Kakao versus HYBE confrontation but how to properly organize the board after the founder’s departure to develop the company long-term, contributing to shareholders, employees, and the industry," adding, "(We) have gathered six experts essential for company development, including two women." The three main points are governance, IT, and global business expansion, addressing areas neglected by the founder that hindered company growth.

In response to these criticisms, a senior HYBE official said, "Kakao has previously attempted illegal actions to harm other shareholders’ interests through third-party allotment rights issues, convertible bond (CB) issuance, and preferential subscription contracts in this acquisition battle," adding, "Kakao’s emphasis on proportional shareholder interests and claims to enhance shareholder value prove that Kakao’s appearance and reality differ."

Namkyu Kang: "HYBE Has Rich Experience Creating National Wealth in the Global Market"

Namkyu Kang, a representative lawyer at Gaon Law Firm and one of the outside director candidates recommended by HYBE, argued in a contribution to Segye Ilbo titled ‘Why HYBE?’ that "True enhancement of shareholder value is not achieved through provocative letters from activist funds but as a result of upgrading fundamentals (business capabilities)," and claimed, "HYBE is the partner that can elevate SM to the global music market’s ‘Top 3.’"

Lawyer Kang emphasized, "HYBE succeeded in breaking the existing music industry landscape where SM, YG, and JYP were competing like the ‘Three Kingdoms’ in the narrow Korean market, expanding into a global content platform company that integrates multi-labels, solutions, and communities." In fact, HYBE’s sales increased by 187% (1.0943 trillion KRW) over the past three years, while SM’s grew by only 24% (158.8 billion KRW). Last year, HYBE’s net profit of 259.4 billion KRW was nearly three times that of SM (92.5 billion KRW). The difference in performance is analyzed to be due to the presence and intensity of overseas market development.

He also pointed out, "Kakao’s ‘SM 3.0 strategy,’ which emphasizes multi-labels, strengthening global market capabilities, and expanding intellectual property (IP) revenue, is not much different from HYBE’s strategy," but added, "The experience and tangible capabilities to produce ‘real numbers’ in global market entry are difficult to match by HYBE’s competitors." In contrast, Kakao grew its business by adding technology to SNS in the domestic music streaming market to improve distribution efficiency and intermediary margins. The experience and capability to export IP globally and create tangible national wealth are incomparable to HYBE’s.

Lawyer Kang also pointed out issues related to the so-called ‘horizontal business cooperation’ between SM management and Kakao. Kakao holds exclusive rights to domestic distribution, and if a joint venture is established 50-50 with Kakao, which has little presence in the U.S., a large portion of domestic distribution revenue worth at least several hundred billion KRW and half of overseas revenue would likely go to Kakao. Kang criticized the business structure, saying, "After deducting such revenue and shareholder returns like dividends, the shareholders’ share will inevitably be limited."

An investment banking (IB) industry official said, "In a situation where the two parties involved in the management rights dispute must secure as many proxy votes as possible, the battle of logic to persuade investors is a desirable phenomenon," adding, "If sufficient information about management introductions and business strategies is provided in advance for investors to refer to, it will greatly help shareholders’ decisions."

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