SM Entertainment seeks support from minor shareholders in Hybe takeover bid

SM Entertainment, a South Korean agency behind several K-pop stars, has asked its minority shareholders for their support ahead of a shareholders meeting scheduled in light of a recent takeover bid by its industrial rival Hybe.

According to industry sources Wednesday, SM has sent letters to small shareholders pledging a dividend payout of 1,200 won (US$0.90) per share. SM has planned a shareholders’ meeting for March 31.

On the cover were the words “SM board recommendations” in a circle, and a red “X” over the words “Proposals by former major shareholder Lee Soo-man,” referring to SM’s founder.

Hybe, the K-pop powerhouse best known for producing global sensation BTS, became the largest shareholder of SM on Feb. 22, acquiring a 14.8 percent stake from Lee, who had an 18.46 percent share in his namesake company.

His remaining stake is also scheduled to be transferred to Hybe this year, as the deal included a put option that gives Lee the right to sell the remaining shares at a specific price within a month from either the time when the business combination is approved or the day when the deal is sealed.

In its letter to minor shareholders, SM called the ongoing saga “a critical turn of events that will never happen again in the Korean entertainment industry.”

“Your decisions will affect the future of our company in a big way,” the letter read. “This year’s shareholders’ meeting is the last opportunity for us to elevate our corporate value as an entertainment company boasting the greatest pool of artists in the country, and also to resolve issues on SM’s governance that have lingered for over a decade.”

In a Q&A session, SM disputed the notion that being bought by Hybe, which runs successful labels, such as BigHit Music, Pledis Entertainment and ADOR, can be a boon for SM.

“When Hybe unearths talented new artists, produces great music or finds great choreographers, it will send them to labels in which it has higher stakes than in SM, such as BigHit, ADOR, Source Music and Pledis,” the letter read. BTS is a BigHit artist, and ADOR has hit the jackpot with the new girl group NewJeans.

“If Hybe only holds up to 40 percent of stakes in SM and other regular shareholders own the remaining 60 percent, then there is bound to be a conflict of interest between SM shareholders and Hybe shareholders,” the letter continued. “Hybe and SM are the two biggest rivals in this industry.”

In defiance of Hybe’s takeover bid, SM recently struck an agreement with Kakao Entertainment, granting the latter exclusive rights to distribute SM’s music and also giving it the preemptive right to purchase new shares in SM.

Hybe threatened legal action against the move.