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Music & Entertainment

SM Entertainment founder’s final audition: New owner

For Lee Soo-man, it's not all about the money — the buyer must have a clear vision for a post-Lee SM Entertainment

By Nov 01, 2021 (Gmt+09:00)

SM Entertainment founder and chief producer Lee Soo-man (left) hosts girl group Aespa on his talk show in June (Courtesy of SM Entertainment)
SM Entertainment founder and chief producer Lee Soo-man (left) hosts girl group Aespa on his talk show in June (Courtesy of SM Entertainment)

“It was not like an M&A negotiation but rather an audition by Lee Soo-man,” said a source at a company that is looking to buy a stake in SM Entertainment Co., South Korea’s first-generation music label, referring to its founder and chief producer.

The hottest news in the local merger and acquisition (M&A) market this year was the announced sale of a 19.37% stake in the K-pop pioneer label that produced numerous global stars such as H.O.T., S.E.S., BoA, Girls’ Generation, EXO, SHINee and aespa. Lee, who is also the company’s largest shareholder, announced in June he would put his entire 18.72% stake up for sale.

Since then, unconfirmed rumors have been swirling outside the negotiation table:
“Lee has requested 4 trillion won ($3.4 billion), double the company's current market capitalization;” or “He's changed his mind and won't sell the stake as aespa has had better-than-expected success;” and “Lee has asked for tens of millions of dollars in annual salary as part of the deal.”

SM ENTERTAINMENT WITHOUT LEE

Since announcing his stake sale plans, Lee is known to have had meals with key executives of major bidders including CJ Group vice chairwoman Miky Lee and Naver Corp. founder Lee Hae-jin, according to sources with knowledge of the deal.

In various discussions with potential buyers, Lee asked about the future plans for SM Entertainment, and some of the bidders were "eliminated," as in an audition according to the sources, because they undervalued the entertainment business in Lee's view.

The process is veiled since the stake sale is not like a usual M&A deal that hires investment banks as managers or advisors. The sale does not have any official process either. He could have opened a public tender to promote competition among bidders if money was his top priority. The sale is the last stage for Lee, who calls himself the founder of K-pop, and various conditions need to be met to reach any kind of agreement.

Lee gave some hints on his criteria during a keynote speech for the World Cultural Industry Forum in July, when he said he has a sense of mission to systemize K-pop and hand it over to someone who will build on the management system he is known for.  
SM Entertainment founder’s final audition: New owner

TO MAINTAIN SM ENTERTAINMENT SYSTEM

Lee was an early leader in the globalization of K-content, including music, while establishing system management in the entertainment sector. He industrialized the genre of South Korean pop music, which had been disparaged as a sub-culture of Japanese pop such as Enka. Lee helped the domestic entertainment sector grow to a predictably marketable industry where music labels discover, nurture and debut potential artists at the opportune time, rather than rely on the capabilities of specific composers or producers.

His impact on the industry in the financial markets is also indispensable. Lee listed the entertainment agency, in a sector that had been widely seen as a gangsters' business, 20 years ago, paving the way for other companies such as HYBE Co. to raise funds through initial public offerings and expand into the global market. HYBE of BTS acquired a 100% stake in Ithaca Holdings, a US-based integrated media company behind artists including Justin Bieber and Ariana Grande, at 1.2 trillion won earlier this year.

So, it is key for the buyer of Lee’s stake to present a clear blueprint for SM Entertainment's future without Lee, and by showing how they will elaborate on Lee's proven system.  Domestic entertainment powerhouse CJ ENM Co. has recently emerged as a potential buyer since it is in exclusive talks with SM. A purchase by CJ ENM is expected to create synergy with SM Entertainment.

But any new owner is unlikely to easily fill Lee's shoes considering that the 69-year-old producer still has the last say on matters such as the hairstyles of the five members of Red Velvet.
Red Velvet (Courtesy of SM Entertainment)
Red Velvet (Courtesy of SM Entertainment)


Write to Jun-ho Cha at chacha@hankyung.com

Jongwoo Cheon edited this article.

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