HYBE not to raise tender offer price for SM Entertainment

HYBE Co., the label behind the world’s top boyband BTS, said it does not plan to raise its buying price for SM Entertainment Co., denting hopes of such a move, which emerged after SM shares shot up above HYBE's bid price on expectations that Kakao Corp. may buy more of the stocks to gain control over the K-pop pioneer.

“We won’t increase the price for SM Entertainment by the end of the tender offer,” said an HYBE official on Feb. 19. “We have no plan to adjust it since we have offered the best price we could propose after various reviews.”

On Feb. 10, the label behind girl group NewJeans said it agreed to buy a 14.8% stake in SM, known for aespa and NCT, from founder and top shareholder Lee Soo-man, for 422.8 billion won ($326.4 million). HYBE also announced a tender offer to purchase an additional stake of up to 25% from minority shareholders by March 1 at the same price, or 120,000 won per share, which represents a 22% premium to SM share's closing price of 98,500 won on Feb. 9.

The stock on Monday tumbled 6.38% to close at 121,800 won in the South Korean stock market, far underperforming a 1.71% gain in the wider Kosdaq. On the other hand, HYBE shares gained 1.37% to 184,500 won, although the main Kospi edged up 0.16%. Kakao shares also rose 1.42% to 64,200 won.

BATTLE BETWEEN HYBE AND KAKAO

SM’s share rose above the acquisition price on Feb. 15 to hit a record high of 133,600 won as dominant local mobile platform Kakao was expected to purchase more stocks to take control of SM after buying a 9.05% stake for 217 billion won.

HYBE's tender offer won't go through if the share price remains above 120,000 won until March 1.

The entertainment company decided not to raise the bid price as that will force the firm to spend more on SM than its valuation, industry sources said. Its share prices are also likely to fall further unless Kakao seeks an additional stake, they added.

HYBE reportedly plans to push ahead with the purchase of SM Lee’s stake regardless of the result of the tender offer. If the company takes over Lee’s remaining 3.6% stake with a put option, it will secure a total of 18.5%.

But if Kakao adds more SM shares through a tender offer to obtain a controlling stake, HYBE will have to consider its next step as a No. 2 shareholder.

Local entertainment industry sources saw potential cooperation between the two companies, although HYBE Chairman Bang Si-hyuk and Kakao founder Kim Beom-soo failed to agree on joint management when they met in the US last week.

Meanwhile, SM said last week it dropped a plan to sell its K-pop fandom platform DearU Co. while it sought to unload stakes in non-music business units – artist management agency KeyEast Co. and drama production SM C&C Co.

“We are considering sales of non-core businesses, but DearU is not under sales consideration for now,” the company said.

That came as SM has yet to discuss the sale plan with JYP Entertainment Inc., DearU’s second-largest shareholder, and Kakao was known to have opposed such a deal, industry sources said.

Write to Dong-Hun Lee at leedh@hankyung.com

Jongwoo Cheon edited this article.