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HYBE’s Attempted Take Over of South Korea’s SM Entertainment Likely to Drag on

South Korean management company SM Entertainment, trying to fend off a takeover by rival HYBE, which manages the K-pop’s BTS, announced a new shareholder return policy on Monday, the latest move in what looks set to be a lengthy battle.

HYBE became the largest shareholder of SM, one of the big three K-pop powerhouses, which manages groups like EXO and Girls’ Generation, after acquiring a 14.8% stake this month.

SM, in an emailed statement, said it planned to bump up shareholder return targets to at least 30% of its separated net income as it seeks to keep onside small investors — who own just over 70% of shares in SM.

SM accused HYBE of obstructing its efforts to introduce a fairer shareholder return policy and forcing SM “to go back to the days when only major shareholders mattered”.

HYBE issued a statement criticising SM for a decision by its board of directors to approve buying treasury stocks worth 63.5 billion won ($48.07 million).

The South Korean pop music industry was dominated for years by three big companies — SM, JYP and YG Entertainment — until boy band BTS rose to international fame, making HYBE bigger than the other three.

Monday’s exchange is the latest in a series of back-and-forths between the two sides, HYBE and estranged SM founder Lee Soo-man on the one hand, and an alliance between SM, the Kakao conglomerate, and activist fund Align Partners on the other.

SM shares traded at 120,300 won, down 0.58%, as the market closed on Monday, nearing HYBE’s tender offer price of 120,000 won.

The tender offer period comes to an end on March 1, a holiday in South Korea when the market is closed.

Even though HYBE seeks to acquire a further 25% stake in SM through a tender offer, its plan to take it over is heading for a drawn-out fight.

“With the stake owned by the institutional shareholders and uncertainty over how individual shareholders will vote, we won’t know until the end of the shareholders’ meeting whether shareholder proposals made by SM will prevail over HYBE’s, or vice versa,” said Park Seong-guk, an analyst at Kyobo Securities.

Kakao Entertainment said on Monday it was working closely with its parent, the messaging platform giant Kakao Corp, to take all measures to protect its partnership with SM.

Kakao had been refraining from commenting for weeks on the proxy fight between HYBE and SM.

On Feb. 7, Kakao announced it would acquire a 9.05% stake in SM in a deal worth 217.2 billion won ($172.8 million). One day later, SM founder Lee filed for an injunction to block the move, setting off a media campaign from both sides to promote their candidates for the Board of Directors.

Source : Deal Street Asia