Kakao, HYBE shares rally on reconciliation but SM shares tank

Investors welcomed the end of a fierce month-long battle between HYBE Co. and Kakao Corp. over control of South Korea’s K-pop pioneer SM Entertainment Co., betting on the acceleration of the country’s chat app monopoly’s global push with SM.

Kakao and HYBE shares jumped 4.7% and 3.2% to end at 60,800 won ($46.41) and 189,600 won, respectively, on Monday, a day after they announced a surprise peace treaty in which HYBE announced its retreat from a bid for SM, citing the overshooting of the stock.

With the fizzling excitement of the management battle, SM shares on the same day nosedived 23.5% to 113,100 won, extending their losing streak for three sessions in a row to trade below Kakao’s tender offer price of 150,000 won apiece.

KAKAO-SM UNION TO SPEED UP KAKAO’S GLOBAL PUSH

Kakao’s tie-up with SM following HYBE’s surrender is expected to foster the global expansion of the Korean platform giant, market analysts said.

“The lack of global users has been Kakao’s major weakness,” said Kim Ha-jeong, an analyst at DAOL Investment & Securities Co. “Kakao is expected to attract more offshore users to KakaoTalk if it adds a platform for (K-pop) fans to the chat app.”

Domestic monthly active users of Korea’s dominant chat app KakaoTalk were 47.8 million as of the fourth quarter of last year but overseas users were only 5.7 million.

Considering the management premium, the current SM share level is still attractive, said Kim, expecting that SM would report 170.6 billion won in operating profit this year on sales of 1 trillion won if it embarks on the SM 3.0 business under the new management.

SM reported 93.5 billion won in operating profit on sales of 848.4 billion won in 2022, according to its earnings report.

CLOUD OVER SM SHARES BUT SUNNY FOR HYBE

Still, SM shares are expected to continue fluctuating for a while as investors who gobbled up the shares on speculation of a stock rally from the management battle will likely dump their holdings following the agreement.  

Short selling of SM shares climbed to 4.98% of its entire outstanding shares on March 10 from 2.93% on March 7.

Unlike SM shares, HYBE shares are expected to remain stable thanks to eased concerns on whether Korea’s biggest market-cap entertainment company behind global sensation BTS and NewJeans could overbid for the K-pop pioneer amid the fierce competition against Kakao.

HYBE said on Sunday that it has agreed with Kakao to end their fight over SM control, citing “signs of overheating” from the competition.

“We concluded that it could have a negative impact on our share value,” the company said in a statement yesterday.

Instead, HYBE and Kakao have agreed to collaborate on their platform business and to contribute to the global promotion of Korean content. Especially Kakao is said to have agreed to offer SM artists’ IPs to HYBE’s Weverse fan community platform.

The latest agreement did not discuss HYBE’s 15.78% stake in SM.

Despite the agreement, Kakao will continue to buy SM shares in a tender offer, which is set to expire on March 26.

SM Founder Lee Soo-man who sold his stake to HYBE has not yet made an official comment on the HYBE-Kakao reconciliation.

Write to Tae-Ung Bae at btu104@hankyung.com

Sookyung Seo edited this article.