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By Kim Han-joo

SEOUL, March 3 (Yonhap) — A Seoul court on Friday blocked a K-pop agency SM Entertainment Co.the planned issuance of new shares and convertible bonds by the entertainment arm of tech giant Kakao Corp.

The Seoul Eastern District Court has granted an injunction filed by SM founder Lee Soo-man preventing Kakao Entertainment’s deal to become the second largest shareholder.

The move marks a victory for Hybe, the K-pop powerhouse behind global superstar BTS, in its ongoing bid to take control of SM Entertainment.

Hybe became the largest shareholder of industry rival SM Entertainment on February 22, acquiring a 14.8% stake from Lee, who held an 18.46% share.

Hybe is looking to buy a 25% stake from other shareholders to eventually build up a 40% stake by the annual meeting of shareholders scheduled for March 31.

In response, SM Entertainment’s board of directors led by Lee’s nephew entered into an agreement with Kakao Entertainment to issue new shares through a third-party allotment.

The deal, if completed, would see Kakao own a 9.05% stake in SM Entertainment and become the second largest shareholder.

Lawyers for Lee asserted that the issuance of new shares and convertible bonds should be done for management purposes and should not harm ordinary shareholders by undermining the value of their assets.

Current SM Entertainment management, meanwhile, said Lee colluded with industry rival Hybe through a stock purchase deal for his own gain.

The court on Friday accepted most of Lee’s arguments, saying SM Entertainment did not have a compelling need for funding and the deal could undermine the value of assets held by Lee and other existing shareholders.

Additionally, the court ruled that Lee – who still owns a 3.65% stake – has a legitimate need to seek an injunction because the right of first refusal is granted to each shareholder.

Lee is considered a K-pop pioneer who has managed various artists since the early 2000s. Before BTS became a global superstar, SM Entertainment was one of the top three K-pop agencies in the country, with big names in K-pop, like EXO, Red Velvet and NCT, to his credit.

Following the decision, Lee stated that he intended to leave SM Entertainment to the best actor in the industry, which was Hybe to him.

“I’m heading into the second half of my life after finishing the first half leading SM,” Lee said in a letter to SM executives and fans.

Yoon & Yang, a law firm representing Lee, welcomed the court’s decision, saying the decision to issue new shares and convertible bonds was made in an unlawful attempt to influence the control and governance of the company. ‘business. ‘business.

SM and Hybe accounted for about 70% of domestic music revenue and 89% of the performance market in Q3 2022, according to SM.

khj@yna.co.kr
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