HYBE Slams New Statement Made By Kakao Entertainment Over Partnership With SM Entertainment+ Points Out The Problems In It And To Check Its Legality

Published Categorized as Kpop

HYBE has refuted the statements announced by Kakao Entertainment saying their announcement does not explain problems raised by them.

On February 27, HYBE said that they have already expressed their position on the problems in the business cooperation contract between SM Entertainment, Kakao Entertainment on February 24, and this announcement of Kakao Entertainment’s position does not fully explain the problems raised by them while adding additional points to explain the problems in SM and Kakao agreement.

The following is the full statement of HYBE’s official announcement:

Hello, we’re HYBE.
We would like to express our company’s position on the position of Kakao Entertainment reported on February 27.
HYBE has already expressed their position on the problems in the business cooperation contract between SM Entertainment and Kakao/Kakao Entertainment on February 24, and the announcement of Kakao Entertainment’s position does not fully explain the problems raised by the company.

Therefore, there is no particular change in our previously announced position. In addition, as stated in our IR call on February 21, the position that Kakao Entertainment’s business proposal can be fully considered if it helps SM’s business under the premise that Kakao is not interested in participating in management has not changed.

We hope there is no misunderstanding of our position. However, Kakao Entertainment’s statement says, ‘…We believe that a complete revision of the existing strategy is inevitable, and Kakao Entertainment will actively discuss with Kakao to come up with all necessary measures.’

Rather than continuing their ambiguous position with domestic platform giant Kakao, it would be a responsible action to reduce uncertainty among capital market participants to clarify whether this is a ‘declaration to actively participate in management instead of business cooperation with SM.’

In addition, there are some of the following contents announced by Kakao Entertainment that may cause misunderstanding, so we have added an explanation of this as follows.

1. Kakao Entertainment claimed, ‘The priority negotiation rights listed in the new stock conversion bond acquisition contract are also only a dilution prevention clause generally held by minority shareholders,’ but we believe this clause is a very unusual preference and additional explanation is needed in the following points.

The provision that gives priority to minority equity investors is not common, and it is a contract that can be a big problem, especially for listed companies.

In the case of small unlisted companies such as startups, these provisions may be included, but they must be deleted to protect shareholders in order to proceed with the IPO process.

There are numerous shareholders in listed companies because it is not appropriate to give certain shareholders priority over general shareholders.

In that sense, Kakao Entertainment’s unlimited priority is a very unusual privilege. If it is such an attribute that can infringe on the interests of all shareholders, it is reasonable to obtain the consent of the general shareholders’ meeting, not the resolution of the board of directors.

2. The appointment of other non-executive directors of SM by Kakao Entertainment executives is itself a conflict of interest.

Our argument is not to raise questions about the capabilities of Kakao Entertainment executives recommended as SM or other non-executive directors, but to point out that Kakao Entertainment executives will actually oversee the distribution organization, creating a conflict-of-interest structure that will limit SM artists’ bargaining power.

We believe that the contract between Kakao Entertainment and SM undermines SM’s shareholder value, restricts SM artists’ rights, and makes SM members’ future finite, and we urge SM’s current executives to stop making all detailed decisions related to this contract. In addition, we will quickly review the legality of this Agreement and take all necessary measures.
Thank you.”

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