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Entertainment

CJ joins race for over $200 mn stake in SM Entertainment

Kakao, touted as the strongest candidate, proposes over a 70% premium for SM Entertainment

Aug 03, 2021 (Gmt+09:00)

SM Entertainment founder and Chief Producer Lee Soo-man (left) and SM's latest group, Aespa
SM Entertainment founder and Chief Producer Lee Soo-man (left) and SM's latest group, Aespa

South Korea's entertainment- and food-focused CJ Group has emerged as a darkhorse to buy a controlling stake worth about 300 billion won ($260 million) in SM Entertainment Co., the label behind K-pop groups such as Red Velvet, NCT and EXO.

Jumping into the race for an 18.75% stake in the entertainment powerhouse, CJ Group Vice Chairman Miky Lee, who reportedly lives in the US Virgin Islands, recently took an abrupt trip to Seoul and met with SM founder and Chief Producer Lee Soo-man, The Korea Economic Daily TV reported on Aug. 3.

She oversees CJ Group’s strategic direction and management of entertainment and media businesses. The granddaughter of Samsung Group founder Lee Byung-chul came into the spotlight at the Academy Awards ceremony in February 2020 where she delivered an acceptance speech as the producer of the Oscar-winning "Parasite."

The stake up for sale by SM's Lee is the single largest shareholding in the agency and comes with the management right. The news about CJ's participation in the bidding sent SM shares 7.8% higher to a one-week peak of 64,900 won in the morning.

CJ may need to challenge the strongest candidate Kakao Corp., the country's dominant mobile messenger app with businesses ranging from entertainment to fintech and ride-hailing services.

Miky Lee (center) speaks after \
Miky Lee (center) speaks after "Parasite" wins the Oscar for the best motion picture of the year in 2020


Kakao is said to have proposed over a 70% premium to buy the controlling stake in SM, according to the report. Based on its estimated enterprise value of SM Entertainment that exceeds 2.5 trillion won, the stake up for grabs is worth about 470 billion won, compared to its market value of 270 billion won.

Market speculation is that the intensifying competition would likely push SM Entertainment's value as a whole to as high as 4 trillion won ($3.5 billion).

Kakao founder and Chairman Brian Kim has met with SM’s Lee and top managers about the stake deal and both sides made some progress, the report added.

Another candidate HYBE Co., the label behind the global boyband sensation BTS, had approached SM and suggested a higher price than Kakao's. But SM's Lee turned down the offer for unknown reasons.

SM Entertainment, founded in 1995, has introduced systematic casting, training and producing of singers and music, leading the global Korean Wave and K-pop sensation.

SM's Aespa and their avartars
SM's Aespa and their avartars
SM controls 20% of the domestic entertainment management market, behind market leader HYBE with a 33% share. SM's market capitalization is about one-tenth of HYBE's. 

In its latest regulatory filing on July 23, SM repeated that it has engaged in discussions in relation to business tie-ups and equity investments, but nothing has been determined.

With the competition heating up for control of SM, Morgan Stanley has raised its ownership in the entertainment agency to 5.08% as of July 30, according to its disclosure on Monday.

Last year, SM reported a 12% drop in revenue to 580 billion won from a year earlier, while remaining in operating losses. 

insight@hankyung.com

Yeonhee Kim edited this article.

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