CJ ENM in exclusive talks to acquire SM Entertainment

South Korea's entertainment powerhouse CJ ENM Co. is in exclusive talks to acquire a 19.37% stake in SM Entertainment Co., the country's first-generation music label and widely credited as the pioneer of K-pop.

According to the investment banking industry on Oct. 15, Kakao Entertainment Co., considered a strong candidate, has decided to drop out of the bid, making CJ ENM the sole bidder.

CJ ENM has submitted a new proposal and is in talks with Chief Producer Lee Soo-man, founder and biggest shareholder of SM Entertainment, who has put his entire 18.72% stake up for sale. 

As of Oct. 15, SM Entertainment’s market capitalization stood at around 1.8 trillion won ($1.5 billion), valuing the selling stake at around 354.4 billion won. Market watchers expect the value to hike to anywhere between 500 billion won and 600 billion won once the management rights premium is factored into the price.

Details on the M&A have yet to be decided. But a source familiar with the deal stated that Lee is determined to maximize the sale price and also maintain his role as the chief producer after the stake deal. Due to this, likely scenarios include CJ ENM acquiring some of Lee’s stake while simultaneously spinning off its music business to merge with SM Entertainment so that Lee can still oversee the company for some time.

LOOKING TO SHORE UP MUSIC OPERATIONS AND BOOST CONTENT

CJ Group is hoping to boost its content offering by acquiring SM Entertainment. CJ ENM currently runs around 16 cable TV channels including drama channel tvN and music channel Mnet as well as an over-the-top (OTT) platform TVing. The group is also Korea's leading film producer and distributor. 

By acquiring SM Entertainment, CJ ENM will be able to create exclusive content based on the label's intellectual property portfolio and artists.

CJ ENM is also looking to shore up its music business, which has been identified as an area of weakness for the entertainment company. The company currently manages artists through 10 music labels including AOMG and Wake One Entertainment, which houses popular K-pop artists such as Jay Park.

Founded in 1995, SM Entertainment became a leading K-pop label thanks to the success of its artists such as H.O.T and S.E.S. It also led the global Korean Wave by successfully debuting female artist BoA in Japan. In 2000, the company made a trading debut on Kosdaq.

SM Entertainment is also noted for introducing systematic casting, training and producing of singers and music. The company has produced global K-pop artists such as SuperJunior, EXO, Red Velvet, NCT, Girls' Generation, Shinee and Aespa.

Write to Jun-ho Cha at chacha@hankyung.com
Danbee Lee edited this article.