Activist fund steps up pressure for SM Ent's governance reform

Align Partners Capital Management, a South Korean activist fund, has threatened legal action against entertainment behemoth SM Entertainment Co., repeating its call for governance reform.

On Thursday, Align Partners sent a shareholder letter to SM’s board of directors, stating that the company has taken no action in response to its call to review its business contracts with the boutique firm Like Production.

Like Production is wholly owned by SM founder and Chief Producer Lee Soo-man. Lee has an 18.5% stake in SM Entertainment. 

SM has paid hundreds of millions of dollars every year to Like Production in royalties, which the activist fund says undermines the entertainment giant’s shareholder value.

In the first half of this year, SM paid 11.4 billion won ($8.7 million) in royalties to SM, according to Align. The amount is equivalent to 30% of SM’s consolidated operating profit of 38.6 billion won during the same period.

Align owns a 1.1% stake in SM Entertainment, the label behind K-pop idol groups such as Super Junior.

The letter was issued after the activist fund in March offered support to shareholders in its continued push to hire an independent auditor for the listed entertainment company.

“If (SM) fails to come up with reasonable and specific plans that convince shareholders, we will take various steps in phases, including legal action, to exercise shareholder rights,” Align said in a statement.

The local fund was established in 2021, led by M&A bankers from Goldman Sachs and KKR & Co.

This year, it added JB Financial Group to its portfolio after buying a 14.0% stake in the banking group based in North Jeolla Province for 248.2 billion won.

JB became Align's second investment in a South Korean financial services firm, following a 1% stake purchase in Woori Financial Group in December of last year.

Write to Tae-Ung Bae at btu104@hankyung.com
Yeonhee Kim edited this article