HYBE accepts Kakao’s tender offer to exit SM Entertainment

HYBE Co., the largest shareholder of SM Entertainment Co., said on Friday it has accepted Kakao Corp.’s tender offer to sell its shares in the K-pop pioneer for as much as $440 million, or about 25% more than its purchase price.

“Since we withdrew our bid for management rights (of SM Entertainment), we will participate in the public tender to sell all or part of our shares (in SM),” HYBE said in a regulatory filing.

HYBE, the company behind the global sensation BTS, holds a 15.78% stake in SM, most of which it purchased directly from SM Founder Lee Soo-man for 422.8 billion won ($330 million) last month.

If it disposes of all of its SM shares through the public tender, it will pocket 563.6 billion won ($440 million). But the exact size of the share sale will be finalized after the tender offer expires this Sunday.

HYBE's announcement comes less than two weeks after it dropped a bid for SM, following Kakao's takeover bid to secure a 35% stake in the producer of a string of Korean idols.

Kakao, South Korea’s dominant mobile platform, offered to buy SM shares at 150,000 won per share, above Friday’s closing price of 107,200 won.

Earlier this month, SM’s share price rallied to a record-high 161,200 won as HYBE had been speculated to make a higher tender offer.

HYBE’s decision to exit SM comes after its Founder and Chairman Bang Si-hyuk expressed his intention to buy two prominent global music labels this year to diversify the company's portfolio.

The divestment also seems aimed at maximizing its shareholder value, which it cited as the main reason behind its withdrawal from the competition for SM.

Financial industry watchers said HYBE might seek to avoid the capital market law, under which it must return to the company any capital gains it reaps from the disposal of the latter’s shares less than six months after its purchase.

Public tenders are free from the regulation.

Write to Dong-hun Lee at dhlee@hankyung.com

Yeonhee Kim edited this article