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HYBE Cancels Bid to Control SM Entertainment, Sending Rival’s Stock Down 23%

The agency behind BTS said it was still studying possible avenues for collaboration with SM, once South Korea's dominant K-pop company.

SEOUL — K-pop juggernaut HYBE has withdrawn its bid to control rival agency SM Entertainment and has instead decided to collaborate with SM as well as rival bidder Kakao, marking a sudden détente. Announced early Sunday, the resolution paves the way for K-pop agencies to not only bury the hatchet but also continue their push to monetize fandom with idol-related online content.

“Proceeding with a higher tender offer [to beat Kakao’s bid] may have in turn caused a negative impact on our shareholders and we also judged it may have further overheated the market,” HYBE said in a statement. The agency of boy band BTS had secured about 15% of SM, a former market leader, mostly by acquiring shares from SM founder Lee Soo-man, who was recently pushed out from the agency. A previous tender offer to increase HYBE’s stake in SM didn’t move the needle and a counteroffer by Kakao remains outstanding until March 26.

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On Monday, the market reacted by dragging SM stock down more than 23% to 113,000 Korean won, making Kakao’s current offer at 150,000 won more attractive. A HYBE representative said Monday it has not decided whether to sell the SM shares. He added that it was studying possible avenues for collaboration with SM and/or Kakao but declined to comment further. HYBE and Kakao shares have jumped 3.21% and 4.65%, respectively.

SM, which has played a key role in K-pop’s popularity and overseas expansion, has resisted HYBE’s acquisition, slamming it as “anticompetitive.” The two agencies in recent years have dominated the charts, together accounting for nearly half of all albums sold in 2022, according to Korean chart company Circle Chart. But despite its success, shareholders have been calling for changes to the Lee-controlled single-pipeline structure, as rival agencies grew larger by delegating creative direction to mostly autonomous teams. Lee was also being paid millions of dollars a year in producer fees, though he held no managerial position there, an arrangement that shareholders have scrutinized in recent years.

In a drive for reform, SM’s management in February said it would issue new shares to be sold to Kakao as part of a wide-ranging partnership. Lee, then-the biggest shareholder, protested but management overrode him. Lee then offloaded most of his shares to HYBE, which in turn tried to up its stake with a tender offer. Lee successfully challenged the Kakao deal in court, prompting the latter to issue a higher counteroffer.

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“Kakao vows to guarantee operational independence at SM, respecting its strongest asset and impetus, the employees, artists and fans,” said Kakao chief investment officer Bae Jae-hyun in a statement on Sunday. Bae added that Kakao and SM would “create new synergies, based on SM Entertainment’s global IP and production system as well as Kakao’s IT expertise and IP value-chain business capacity.”

HYBE, SM and other rivals have in recent years pushed proprietary platforms like Weverse and Beyond Live to foster online fan communities for all fan activities, free or for-pay. Kakao’s platform and search-engine rival Naver in 2017 also inked a deal with YG Entertainment, home to girl group Blackpink, to push YG artists’ content.

SM did not return calls for comment.