HYBE Corp., the talent firm behind K-pop sensation BTS, has launched a campaign to woo the shareholders of SM Entertainment, the rival Korean talent empire in which it is poised become the largest single shareholder.

In a letter and video package, issued Thursday, HYBE said that it was launching a campaign website detailing its business strategy and the ways in which it plans to prioritize SM shareholders.

The documents directly criticized SM’s current management and also struck out at Korean entertainment-tech giant Kakao, with which SM has recently struck an alliance.

“HYBE’s campaign is to protect shareholder value from inappropriate actions by the current management at SM. It aims to put an end to an unequal partnership contract with Kakao, unrealistic and unsubstantiated financial projections, and emotional messages that gloss over public opinion, all of which the current SM management initiated,” HYBE said.

A week ago, HYBE said that it has already paid for its purchase of a 14.8% stake in SM and expects to complete the legal aspects of the deal by March 6, ahead of the previously announced schedule.

The company is buying most of the 18.7% stake in SM owned by SM founder Lee Soo Man. The deal is priced at $336 million (KRW423 billion), giving SM Entertainment an implied valuation of $2.27 billion. Lee retains an option to sell the remainder of his stake to HYBE at specific prices within a month.

HYBE has also offered to buy a further 25% of the company from other shareholders.

Controversy erupted on multiple fronts shortly after HYBE announced at the beginning of February that it had secured the share deal with Lee. These included revelations about the financial and business relationships that other companies controlled by Lee maintained with SM Entertainment, and vociferous objections from SM Entertainment staff against what they see as a HYBE takeover.

Some 208 SM staff signed an open letter in February that labelled Lee’s activities as “illegal tax evasion.”
SM staff have also ridiculed HYBE’s suggestions that the two groups can operate side by side or that HYBE would be the biggest supporter of new SM 3.0 strategic plan. They suggest that HYBE would always favor subsidiaries and music labels in which it has a higher ownership stake.

“HYBE and SM are the two biggest rivals in this industry,” SM’s Wednesday letter stated.

SM currently represents K-pop acts including Super M, Aespa, BoA and Red Velvet.

HYBE represents BTS and Tomorrow X Together under its Big Hit Music operations, Enhypen under its Befit Lab joint venture with CJ ENM, Le Sserafim under Source Music and is enjoying fresh success with rookie girl group NewJeans.

The dogfight between HYBE, the estranged Lee and SM’s current management is further muddied by the arrival in the picture of Kakao, the $22 billion internet conglomerate that has interests ranging from social media and messaging to games and from TV production to webtoons.

In early February it emerged that Kakao has bought a 9.05% stake in SM, making it the second largest shareholder after HYBE.

It was further revealed that Kakao, subsidiary Kakao Entertainment and SM had signed a contract, which reportedly gives Kakao the exclusive right to distribute albums and music from SM’s artists. At the corporate level, the contract gives Kakao and Kakao Entertainment the pre-emptive right to purchase new shares in SM.

“The business partnership agreement comprehensively covers the future vision and direction pursued by Kakao, Kakao Entertainment and SM Entertainment,” Kakao Entertainment CEO Kim Sung-soo said in a February statement. “We plan to consult with each business to draw up a win-win structure for all companies and sign deals with fair contract terms based on it.”

HYBE has denied that it is mounting a hostile takeover. And Kakao has avoided using the term ‘poison-pill tactics.’

But Kim made little attempt to disguise the contract’s effect of slowing or halting a possible takeover of SM by HYBE. He said that the pre-emptive share buying clause is “part of anti-dilution provisions for minor[ity] shareholders to prevent their investment from potentially losing value,” and denied that it would dilute SM’s profits.

On Wednesday, SM’s current management launched its own campaign to retain the support of minority shareholders. It sent out a letter to shareholders promising them a dividend of KRW1,200 ($0.9 per share) and asked them to reject proposals for the company from Lee. A SM shareholders’ meeting has been set for March 31.

HYBE has put forward two of its own senior executives as future SM board members: Jung Jinsoo, chief legal officer at HYBE, and Lee Jaesang, president of HYBE America.

HYBE has asked Kakao to come clean about whether it intends to become involved in SM’s day-to-day operations and criticized the pre-emptive share purchase clause as inappropriate for a public company.

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