HYBE has announced that it will take legal action regarding the business cooperation agreement between SM Entertainment and Kakao Entertainment.
On the 24th, HYBE released an official statement stating that it is reviewing the legal issues contained in the agreement which has been outlined recently.
Earlier on the 7th, SM Entertainment and Kakao Entertainment signed a business cooperation agreement. According to the known content of the contract, SM Entertainment agreed to grant Kakao Entertainment the right to distribute its artists’ music and albums. Additionally, an unusual provision was included in the contract stating that if new shares or convertible bonds are issued, Kakao would have the first right to acquire them.
Regarding this, HYBE pointed out, “every time SM’s stock price drops, (Kakao Entertainment) can continuously increase its stake by using its priority to participate in third-party allocated paid-in capital increases,” and “there is a concern that the value of the stake will be diluted, which will result in an unequal scenario for ordinary shareholders.”
Regarding SM Entertainment’s statement that it has established a “horizontal cooperative relationship” through this agreement, HYBE stated that it is difficult to understand and believes that “Kakao Entertainment will actually manage SM Entertainment’s artists.” HYBE also believes that “Kakao Entertainment will limit negotiation power for distribution, such as concerts and fan meetings.”
HYBE criticized the agreement, saying, “this agreement damages the value of SM Entertainment’s shareholders, restricts the rights of artists, and limits the future of SM Entertainment’s members.”
Finally, HYBE emphasized that it demands that the detailed decision-making related to this agreement be suspended and explained that “we were surprised and worried about the content of this business cooperation agreement” and that “we will prioritize the protection of the rights of SM Entertainment’s members and shareholders and resolve unreasonable aspects that restrict artists’ rights one by one.”