SM Entertainment strongly criticized the acquisition of HYBE, calling it a ‘hostile M&A (merger and acquisition)’ that did not go through a consultation process with the management. Concerns were also expressed that if this acquisition is completed, SM’s corporate value will decline and HYBE will have a monopoly position in the domestic entertainment industry.
On February 20th, SM Entertainment posted a video titled ‘The reason why SM opposes HYBE’s hostile takeover’ through SM’s official YouTube channel. This video contains details of SM’s opposition to HYBE’s hostile M&A attempts.
SM’s CFO Jang Cheol Hyeok emphasized in the video that HYBE would acquire a 14.8% stake to become the largest shareholder in SM and achieve a 40% stake through a tender offer as a hostile M&A. He said, “It is clearly a ‘hostile M&A’ attempt that did not go through a consultation process with the current management and board. HYBE is trying to exercise management rights by taking over SM’s board of directors.”
He said, “In this governance structure, it becomes difficult to make decisions that prioritize the value of all shareholders, and the guarantee of independent management of SM, which HYBE insisted on, is also a promise that is difficult to keep. It’s like going back.”
Director Jang emphasized that when HYBE, a competitor of SM, becomes the parent company, various issues arise in areas such as- SM artist’s album release, fan platform and commerce, and new business progress. It is that the albums of label artists belonging to HYBE may be released first, or the new growth engine may be lost due to failure to manage fan platform data.
Furthermore, he raised the possibility of SM IP (intellectual property rights) entering Weverse (depriving opportunities of SM’s own platform business), HYBE outsourcing IP monetization business (SM IP and future profits belong to HYBE), and argued that the business synergy between the two companies was also claimed to be only for HYBE’s additional revenue generation.
“These companies’ businesses are in competition with Weverse, and there is no clear explanation of what they will do with their business after acquiring a stake in former executive producer Lee Soo Man,” he said. “Against this background, the value of these companies is likely to be transferred to HYBE in the end, and there is no effect on improving governance from SM’s point of view,”
Director Jang said, “SM and HYBE are both large entertainment companies leading the domestic entertainment industry, and if the two companies are combined, they will have a monopoly position accounting for about 60% of the total market sales. In the end, it is the fans who suffer,” he said, citing the rise in ticket prices of various labels under HYBE as an example.
Lastly, he said, “SM will implement ‘SM 3.0’ in the future to create a new growth business in addition to strengthening the existing IP business, thereby achieving market revaluation and returning it to shareholders to form a virtuous cycle of shareholder value enhancement that creates high corporate value. Before the tender offer application deadline, I will deliver the entire strategy of ‘SM 3.0’ that SM is drawing, so please listen to it and make a decision.”
On the other hand, HYBE said, “As we are already in the process of improving SM’s governance structure and improving the value of the company and shareholders, we will continue to do so.”
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