Kakao's tender offer for SM Ent. twice oversubscribed

SM Founder Lee Soo-man has not accepted the offer made 40% above Friday's closing level

Kakao digested only 44% of the shares offered for sale by public tender

Jun-Ho Cha 1

2023-03-27 16:23:59 chacha@hankyung.com

Mergers & Acquisitions

South Korea’s Kakao Corp. has secured 40% of SM Entertainment Co. as planned, wrapping up its 1.25-trillion-won ($960 million) takeover bid for the K-pop powerhouse, according to people with knowledge of the matter on Monday.

The tender has attracted more than twice as many bids as expected, or nearly 80% of SM’s outstanding shares.

Kakao, the country’s dominant mobile platform, had planned through the tender to buy a 35% stake in the K-pop pioneer, on top of its 4.91% stake, to become SM's largest shareholder.

As it had ratcheted up competition against HYBE Co. to gain control of the agency of first- and second-generation K-pop idols, the company behind the boy group BTS dropped its bid for SM earlier this month.

In the tender, HYBE is estimated to have divested of a 6.97% stake in SM, or less than half its 15.7% stake in the entertainment giant.

HYBE, online game developer Com2uS Corp. and other major institutional shareholders have accepted Kakao’s tender offer, which was 2.27 times oversubscribed.

The bid price of 150,000 won is 40% higher than Friday’s closing price of 107,200 won.

Given the oversubscription, Kakao has digested 44% of the shares offered during the March 7-26 tender that expired on Sunday through a prorated purchase.

Its 39.91% ownership of SM is divided into a 20.78% stake held by Kakao Corp. and a 19.13% stake owned by Kakao Entertainment Corp.

SM Founder Lee has produced a string of K-pop idols such as BoA, H.O.T., S.E.S. and Girls' Generation

SM Founder and former Chief Producer Lee Soo-man has refused to accept Kakao's bid, in which he could have divested his 3.65% stake in the company he established in 1995 at a higher price than HYBE’s offer price.

Last month, Lee sold a 14.8% stake in SM to HYBE at 120,000 won per share. Under the deal, Lee was granted a put option to sell the remaining 3.65% stake to the music company for the same price.

On Monday, shares in SM plunged by the 15% daily limit to 91,200 won -- their lowest closing point since early February -- on investor concerns that a big chunk of SM shares that failed to be digested in the public tender could come back on the market.

To see the timeline of the saga surrounding SM Entertainment, click here.

Write to Jun-Ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article