BTS agency Hybe to emerge as largest shareholder in SM Entertainment

By Kim Joo-heon Posted : February 10, 2023, 16:39 Updated : February 10, 2023, 21:18

[Courtesy of Hybe and SM Entertainment]

SEOUL -- Hybe, the agency of BTS, is expected to become the largest shareholder in entertainment powerhouse SM Entertainment, by purchasing a 14.8 percent stake. The decision was made while SM's founder Lee Soo-man embarked on a legal battle with SM's executive boards for issuing new shares to sell them to Kakao Corp., the domestic internet giant.
Through SM, Lee has played a crucial role in popularizing K-pop through talented artists such as Girls' Generation, Super Junior, and Red Velvet. However, he came under fire since the launch of a campaign by Align Partners Capital Management, an activist fund operator which accused Lee of undermining the credibility and market value of his company by receiving a certain percentage of sales as royalties to his private company every year. Align Partners, which was holding less than a 2 percent stake in SM, kept doubts alive over SM's ownership structure.
In early February 2023, SM unveiled its scheme to launch a multi-level governance system instead of only relying on its founder. The agency then agreed to sign an agreement with Kakao to issue new shares worth 217.2 billion won ($171.8 million) and cooperate with the entertainment and content wing of Kakao to nurture new artists. The agreement would position Kakao as the second largest shareholder in SM with a 9.05 percent stake, followed by Lee with about 18 percent. Regarding SM’s decision, the 70-year-old former producer argued that it is illegal to issue new stocks or convertible bonds to a third party to change the governance structure through his legal representative Yoon & Yang.
Hybe said in a statement on February 10 that Lee has agreed to sign a stock purchase agreement with the BTS agency. Through this, the company can become the largest shareholder in SM with a 14.8 percent stake worth 422.8 billion won. "Leveraging our capabilities and resources, HYBE will further strengthen the presence of K-pop on the global stage," Hybe Chairman Bang Si-hyuk said in a statement. He added, "Hybe fully agrees with former Chief Producer Lee's strategic initiatives including metaverse, a multi-label system, and the sustainable vision campaign."
Hybe can face obstacles if its stake increases to 15 percent or higher from 14.8 percent as the Korea Fair Trade Commission (KFTC), an antitrust regulator, may take action if the combined share of the two powerhouses is extremely high and has a negative effect on the entertainment industry such as monopoly. According to KFTC, a report should be made if a company with assets or sales of more than 300 billion won acquires more than a 15 percent stake in a listed company with assets or sales of more than 30 billion won. 

As of 11 a.m. (0200 GMT) on February 10, Hybe ranked first among K-pop agencies with a market capitalization of 8.8 billion won, followed by JYP Entertainment with 2.6 trillion won and SM with 2.7 trillion won. To consolidate and strengthen its position in the global market, Hybe earlier acquired QC Media Holdings, a hip-hop label based in Atlanta which nurtured renowned hip-hop duo City Girls and rapper Lil Yachty.
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