HYBE kicks off campaign to win over SM shareholders

Bang Si-hyuk, founder and chairman of the BTS label HYBE Co., has kicked off his campaign to gather support from institutional investors to take control of SM Entertainment Co., ahead of the latter’s shareholder meeting on March 31.

The lyricist, composer and music producer has met with chief executives and decision-makers of asset management companies and pension funds, including the National Pension Service (NPS), according to sources familiar with the situation on Thursday.

He recently held face-to-face meetings with KB Asset Management Co.’s Chief Executive Lee Hyun-seung and senior investment managers of the NPS and online game developer Com2uS Corp.

They were among the top three major shareholders of SM as of end-2022, excluding then-top shareholder and Founder Lee Soo-man.

The NPS held an 8.96% stake. Com2uS and KB Asset had a 4.20% stake and a 3.83% stake, respectively.

It is not common that a company’s founder in South Korea directly reached out to institutional shareholders and asked for their help at an annual general meeting (AGM).

His meetings with them come shortly after the country's largest mobile platform Kakao Corp. launched a 1.25-trillion-won ($960 million) takeover bid for SM, which will expire on March 26.

If Kakao’s tender offer is successful, it will secure up to 40% of the K-pop pioneer, far above HYBE’s stake, which is expected to climb to 19.43%. 

HYBE, the agency behind the girl groups NewJeans and Le Sserafim, is making an all-out effort to dominate SM’s board, ousting all of the incumbent, Kakao-friendly directors.

It is striving to muster support from shareholders, who can vote in its favor, regardless of the results of Kakao’s tender offer. The ongoing fight between HYBE and Kakao for control of SM will likely culminate at the AGM.

Institutional investors hold a combined 20% stake in SM, with minority shareholders accounting for 60%.

Other institutional shareholders include VIP Asset Management, Timefolio Asset Management, Must Asset Management and Tiger Asset Management.

HYBE can vote by proxy for Founder Lee’s 18.45% stake.

Bang will also visit Sustinvest, a proxy advisor, as local activist fund Align Capital Partners Management has been seeking to gather support on behalf of the SM-Kakao alliance.

Align Partners, with a mere 1.1% stake in SM, has said it would not accept Kakao’s tender offer and instead will exercise a casting vote.

SM’s share price has already topped Kakao’s bid price of 150,000 won. It ended 2.27% lower at 154,900 won on Thursday, coming off a record high of 161,200 won touched on Wednesday.

SM's Co-CEOs Lee Sung-soo and Tak Young-jun and other registered directors have less than 0.67% of SM in aggregate. Thus, they need to draw support from all institutional shareholders to raise their chances of winning at the AGM.

To appeal to institutional investors, HYBE's Bang promised to stick to the principles of fair and transparent management to set it apart from the Kakao-SM alliance, according to the sources.

The 50-year-old musician underscored that his company has been trying to secure control of SM in due process unlike Kakao, whose attempt to become SM’s No. 2 shareholder through new shares was rejected by a Seoul district court last week.

Stuck in the middle, some of SM’s institutional shareholders remain indecisive because they find it hard to justify any decision they would make at the AGM.

They say the situation is different from last year, when they voted against SM and Founder Lee and joined Align Partners to demand SM terminate its unfair business practices with Lee’s boutique company Like Production.

SM eventually accepted their demands, including appointing an outside auditor recommended by Align Partners.

“Last year, we came together under the banner of shareholder activism,” said an institutional investor asking for anonymity.

“But this time around, it’s hard to take a stance. We may appear to take a proxy role in the fight between HYBE and the SM Entertainment-Kakao alliance.”  

Write to Ji-Eun Ha and Jun-Ho Cha at hazzys@hankyung.com

Yeonhee Kim edited this article