As SM Entertainment Co., the label behind the global K-pop phenomenon, is up for grabs in the M&A market, the battle heats up between the country’s two online giants Naver Corp. and Kakao Corp. to lead the platform industry.
According to the investment banking industry on June 1, Lee Soo-man, founder and the largest shareholder of the top Korean entertainment agency, has been tapping the M&A market to sell his 18.73% stake in line with efforts to improve SM’s corporate value.
SM Entertainment negotiated a deal with China’s Tencent Holdings Ltd. under the table in late 2020, and early this year HYBE Co., the label behind the boyband sensation BTS, approached SM, which rejected a deal, according to industry officials.
Over the past few weeks, Naver and Kakao reportedly were in separate talks with SM Entertainment, the label behind global talent such as Red Velvet, NCT, EXO and SuperJunior, to acquire the stake from Lee, currently chairman and chief producer at SM.
Both negotiations have been concluded without any tangible results, but industry watchers say Naver and Kakao have good reason to continue to pursue the stake acquisition.
Lee Soo-man, SM Entertainment founder and chief producer KAKAO STANDS TO BENEFIT FROM SM ACQUISITION
Kakao Entertainment, under its wing, owns seven management firms including Play M Entertainment and Starship Entertainment, and four music labels, which boast top Korean artists such as IU and K. Will.
The takeover of SM, which controls 20% of the domestic entertainment management market, would put Kakao in second place with a 25% market share, just behind market leader HYBE with a 33% share.
Kakao would also gain access to DearU, a K-pop platform run by SM Entertainment.
However, talks between Kakao and SM have apparently hit a snag as they differ over valuation, said industry officials.
Kakao offered about 40,000 won a share for the SM Entertainment stake, but Lee rejected it, they said.
Listed on the junior Kosdaq market, SM Entertainment’s stock is currently trading at 44,450 won.
Naver and Kakao compete in various sectors to gain the upper hand. ALLIANCES ACCELERATE AS RIVALRY INTENSIFIES
The current market frontrunner, an alliance between Naver and HYBE, formerly known as Big Hit Entertainment, is being challenged by a new coalition between game publisher NCSoft Corp. and Kakao, the operator of Korea’s largest messaging app.
The rivalry between Kakao and Never to expand their influence in the global content market is seen widely across industries, ranging from web fiction and gaming to online shopping and music.
Earlier in January, Naver and HYBE became former rivals-turned-partners when Naver invested 411.9 billion won in BeNX, the operator of fan community platform Weverse under HYBE, and became its second-biggest shareholder. Weverse has over 4.7 million users.
“Naver and Kakao are competing in four major categories, which are advertising, shopping, fintech and content. The shopping business requires a logistics network, while the fintech business operates under tight government regulations, meaning it's hard to gain the upper hand in those areas,” said a local brokerage analyst.
“However, the content business is relatively easy to crack and grow into a global leader. That’s why the two platform giants are engaged in head-to-head competition.”
