Recent report about the state of SM and the possibility of artists leaving the company after getting offers from other agencies.
In the process of a dispute between Kakao, HYBE, and Alignment Partners over SM Entertainment’s management rights, SM Entertainment seems to be festering inside. Tens of billions of won were spent on responding to the dispute, leaving them with a lack of money, and concerns over the departure of members, including their artists, also grew. There are concerns that prolonged disputes will significantly reduce the company’s competitiveness.
According to the investment banking (IB) industry on March 1, SM Entertainment’s current management, which defined HYBE’s acquisition attempt as hostile merger and acquisition (M&A), is estimated to have spent a big fortune on the defense of management rights. First of all, it is reported that about 2.5 billion won ($1,9oo,000) was invested in hiring Boston Consulting Group (BCG), a strategic consulting company. Six voting rights delegation agencies were also hired to secure voting rights from friendly shareholders. Considering that it usually employs one or two companies, it is unprecedentedly huge. It is observed that at least 1 billion won ($762,000) to 2 billion won ($1,500,000) will be paid to these companies alone.
Executives and employees are also being mobilized to collect voting rights. They visit an institution that will act as a ‘casting boat’ and ask for the current management’s support when exercising voting rights. Key executives, including CEO Lee Sung Soo, are holding NDRs in Hong Kong and Singapore to meet and persuade foreign investors.
In a chaotic situation where it is impossible to predict, a large number of artists are about to renew their contracts. Most of SM Entertainment’s artists’ contracts, including Kangta, BoA, TVXQ (Changmin, U-Know Yunho), Super Junior, Girls’ Generation (Taeyeon, YoonA, Yuri, Hyoyeon, Sunny), SHINee, EXO, Red Velvet, NCT, SuperM are known to expire between this year and next year. Some big agencies are reportedly contacting artists whose contracts are about to expire and sending offers.
A fund manager said, “The bigger problem is that ordinary shareholders, including institutional investors, want a ‘long-term dispute’ to maximize profits. Investors also agree that disputes should be settled as soon as possible to enhance long-term corporate value. The dilemma of the capital market is that it may be a reasonable choice to continue confusion regardless of the company’s competitiveness to boost stock prices in the short term.”
What are your thoughts on this?