Regulator watches as K-pop agencies battle for tie-up with SM Entertainment
K-POP agencies HYBE and Kakao, battling each other to tie up with rival SM Entertainment, are facing the new challenge of a possible review by the South Korean competition regulator should either succeed.
Kakao’s agreement this month to acquire SM shares as a step towards forming a partnership with the target company is also being opposed in a court action that could improve the chances of HYBE reinforcing its dominance of the K-pop market.
HYBE has already agreed to buy 14.8 per cent of SM’s shares from SM founder Lee Soo-man and is offering to buy a further 25 per cent of the company from other shareholders.
Regulators are watching, however.
“When a merger and acquisition takes place, we look at various businesses under these corporations, including management, record sales, streaming, tours and merchandise,” Im Kyeong-hwan, the head of the international mergers and acquisitions division at the Korea Fair Trade Commission, told Reuters. “We look at whether they could gain market dominance to make sweeping changes in the prices and quality of their services in the market.”
“Though there have been acquisition deals involving small and medium-sized entertainment agencies, a deal on this scale is a first for us,” the official added.
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HYBE, manager of boy band BTS, accounted for 51.8 per cent of K-pop record sales in January, according to Hyundai Motors Securities.
Kakao, having agreed with SM to acquire a 9.05 per cent state in the company, says it wants not control but a partnership, exploiting synergies that it says have been identified in long-term discussions.
But Lee is seeking a court injunction to stop the transaction, an issue of new shares to Kakao, his lawyers said last week.
Shares of SM Entertainment gained 1.13 per cent on Monday (Feb 13), while HYBE’s fell 3.23 per cent and Kakao’s 4.88 per cent. SM’s market capitalisation is 2.76 trillion won (S$3.13 billion).
Analysts said that even if Kakao could acquire 9.05 per cent of SM shares, it would ultimately be overwhelmed by the nearly 40 per cent stake that HYBE is trying to build.
“HYBE is betting nearly all of its floating funds of 1 trillion to 1.4 trillion won .... I think it’s a decisive move to secure SM, so Kakao has to think hard before it decides to spend more money,” said Jina Ahn, analyst at eBest Investment & Securities.
Jina Ahn, analyst at eBest Investment & Securities, said: “Such a large K-Pop agency coming to market is unheard of. With this acquisition, HYBE will take 60 per cent to 65 per cent of the K-Pop industry.” REUTERS
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