![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
boulevarddoubleHello again!
I wasn't expecting to make another entry so soon, but I should've expected this episode of Kpop Succession to get even wilder.
If you're new here, check out Parts 1-3 (the backstory) or get caught up on the new drama of 2023 in Part 4.
As always, I am not a finance bro, I am not a lawyer, I am not Korean, I don't live in Korea, and in no way shape or form do I consider myself an expert on finance, law, or Korea. I am simply a business drama enthusiast who has been following this story for years.
I also need to give a shout out totmikpop on twitter who is doing the lord's work finding and summarizing the Korean articles on this, many of which I will be referencing in this post.
Once more, I will ensure all personal speculation is in bold.
Part 5: Let the mudslinging begin. Messy!
To recap quickly: Hybe has purchased 14.8% of SM Entertainment (SM) stock from Lee Soo Man (LSM), and has made a tender offer to minority shareholders to purchase their stocks at a price of 120,000 won per share. This price will be relevant.
Hybe has openly stated that they are going after ~40% of SM stock to be not just the majority shareholder, but to basically have a chokehold on corporate governance. At 40% it would be almost impossible to vote against Hybe in electing people to the board, directors, etc.
Meanwhile, the current board, including co-CEO Lee Sung Soo (aka Chris Lee), LSM's nephew (this is also going to be important) is in a strategic alliance with private equity firm Align Partners (AP), and Kakao, in attempting to bring Kakao on as a secondary investor at 9.05% of SM stock.
One actually important fact we have learned since all of this went down is that their is now a date set for the hearing about the injunction that is stopping the sale of stock to Kakao. This will go before the court on February 22nd.
While there have been a few rumors speculating that Kakao will also submit a tender offer to current minority shareholders, this has not yet materialized. One theory (not mine) is that making a tender offer right now would undermine their legal standing at that injunction.
Until the hearing happens, it is unlikely we will know anything about Kakao's further plans. Analysts are predicting that if LSM wins (i.e. no shares are issued to Kakao), they will pull out of this mess completely. However, if Kakao wins, it is possible they do attempt to take on Hybe's plans for a super-majority with their own tender.
We genuinely won't know until we know.
Across town, Hybe is moving forward like they will be the people in charge, and frankly I expect them to be.
On February 13th, Hybe CEO Park Ji Won gave an internal briefing to all Hybe employees explaining the acquisition, and reportedly guaranteed that SM would be independently operated, though Hybe will support them to expand even further.
It is reported that this presentation was then shared with SM employees who, aside from one outspoken VP of Legal Counsel who was subsequently let go, were still -- by a large majority -- against this Hybe takeover.
Rumors flew around over the next few days about who Hybe would be recommending for the board of directors during the SM shareholders meeting on March 31st. Two names rose to the top of the speculation list, Chairman of the Hybe board Bang Si Hyuk (aka Bang PD) and CEO of Ador Min Hee Jin. However, Hybe quickly shot those rumors down, saying they were both too busy to serve on SM's board.
Two days later on February 15th, Hybe sent out their proposal for Board of Directors candidates. This was to comply with Align Partners' imposed due date of the 16th. Crucially, they did not make any recommendations for two positions: CEO and Chairman of the Board.
This is where things start getting juicy.
I had predicted a bunch of suits and countersuits, but up through the 15th, the Kakao/SM/AP alliance had remained suspiciously quiet.
Not for much longer.
On the 14th, AP CEO Lee Chang Hwan went on TV program to decry Hybe's tender offer, saying it was too low. Note: at the time they made it, SM shares were trending at ~98,000 won, so they were very clearly paying a premium. In my opinion, this was a lukewarm appeal to the minority owners to hold onto their shares, which probably didn't do much to persuade anyone.
However that proved to simply be an opening volley.
On Feb 15th, the same day Hybe submitted their proposal, Lee Sung Soo posted a video to his personal YouTube making several serious allegations against his uncle including that he pocketed an extra 6% of profits off of groups such as Aespa, WayV, and Super M, and then made serious claims of Tax Evasion.
He also called out Hybe for not knowing about LSM's overseas shell company, CT Planning, that was allowing him to funnel more money away from SM Entertainment and contributing to his tax evasion. Lee alleged that Hybe didn't do proper due diligence.
More hilariously, he mentioned that the reason Aespa's comeback was delayed was because LSM's desire to have them sing about environmental issues, and that they were visibly upset with key phrases in the lyrics such as "greenism". Lee also alleged that LSM dreamed of "kpop cities" with casinos and weed.
Weed is a huge cultural (and legal) no-no in Korea so this is a bigger blow over there than it would be in many places.
Predictably, the memes are amazing.
In response to the claims of offshore tax evasion, the National Tax Service has begun an inquiry, saying it is obliged to verify the facts when these claims are raised. Outcome on this is extremely TBD.
Hybe also issued their own statement regarding these allegations, basically saying they weren't aware of the contract with CT Planning, and that the terms of their agreement allowed all SM-related contracts with LSM to be terminated. They also (rightfully) pointed out that they weren't the ones who signed the contract in the first place, and that they would be investigating who allowed this to happen.
Lee wasn't done, though.
First, it was announced on February 16th that SM was considering selling off some non-music subsidiaries, with analysts believing this was to erase LSM's shares in those subsidiaries and further neutralize Hybe's tender offer.
Second, in another YouTube video released on the 17th, Lee announced he would step down as CEO at the March 31st Shareholders meeting, so that he could return to his "main job" as a music producer, and addressed Lee Soo Man directly, asking him to kneel down with him and "beg forgiveness from everyone."
While this really reads as dramatics, Lee's alliance seems to be gaining ground in their efforts to diminish the reputation of LSM -- and therefore his alliance with Hybe.
Because while he was kneeling, Dispatch published a 118 point article detailing all the ways LSM has basically defrauded SM Entertainment to the tune of over half a billion dollars.
Many of these points were well known and documented, including the Tax Evasion scandal of 2000 that had him being put on Interpol's wanted list.
Yes, that is a real thing that happened.
However, Dispatch also broke down the profits that Like Planning were raking in (instead of being paid out to SM investors), and basically backed up what Align Partners had been saying all along: LSM was draining SM Entertainment dry. They also reiterated Lee Sung Soo's claims of tax evasion.
Those claims were further backed up by an SM employee council press release that supported the current board , stated they would resist a hostile takeover by Hybe, and said they had evidence of the illegal tax evasion and abuse of power by LSM. It's important to note they did not (yet) make this evidence public.
Once again, this has Hybe and Lee going back and forth over who is ultimately responsible for this contract with CT Planning (the overseas company owned by LSM). Lee keeps mentioning Hybe has failed in due diligence, Hybe continues to be like "yo, we didn't sign the contract, y'all did."
Is any of this mudslinging going to matter in the battle between Evil Alliance #1 and Evil Alliance #2?
Maybe. There is a possibility that having the "moral high ground" will be enough of a justification for the minority shareholders to hang on to their stake in SM. Or that these claims of tax evasion will turn enough regulators' heads that the deal with Hybe ends up being scrutinized more than it would be. Korea is a very image-conscious cultural, so these allegations could potentially create enough public backlash and PR problems that Hybe has to halt their plans.
Honestly, though, that all feels like a longshot to me. I doubt any of this makes a material difference to the Hybe takeover.
However, there is one thing that could prove to be an unexpected foil to the Hybe juggernaut.
Hybe made their tender offer to both LSM and the minority shareholders at 120,000 per share. This offer is good through March 1st.
As of February 17th, SM Entertainment stocks are trading at 130,100 per share.
If you accepted Hybe's offer right now, you would be selling for less than you could get on the open market.
Will SM's stock price stay this high? No idea. Analysts suspect it's mostly a reaction to the news of a takeover, whether it's Hybe or Kakao. If that fervor cools, it certainly could drop back down below 120,000.
But I would bet that smart shareholders are sitting tight and waiting to see what happens. After all, we only have 5 more days until we learn more about the Kakao injunction, so there's no reason to rush into anything.
Truly, you couldn't write a crazier episode of television.
And that's where we are as of 5pm MST on February 17. I will probably do my next update on the 23rd, after we learn more about the Kakao injunction, unless something even bigger and crazier happens.
UPDATE: Part 6: The court and public opinion. All rise!
I wasn't expecting to make another entry so soon, but I should've expected this episode of Kpop Succession to get even wilder.
If you're new here, check out Parts 1-3 (the backstory) or get caught up on the new drama of 2023 in Part 4.
As always, I am not a finance bro, I am not a lawyer, I am not Korean, I don't live in Korea, and in no way shape or form do I consider myself an expert on finance, law, or Korea. I am simply a business drama enthusiast who has been following this story for years.
I also need to give a shout out to
tmikpop on twitter who is doing the lord's work finding and summarizing the Korean articles on this, many of which I will be referencing in this post.Once more, I will ensure all personal speculation is in bold.
Part 5: Let the mudslinging begin. Messy!
To recap quickly: Hybe has purchased 14.8% of SM Entertainment (SM) stock from Lee Soo Man (LSM), and has made a tender offer to minority shareholders to purchase their stocks at a price of 120,000 won per share. This price will be relevant.
Hybe has openly stated that they are going after ~40% of SM stock to be not just the majority shareholder, but to basically have a chokehold on corporate governance. At 40% it would be almost impossible to vote against Hybe in electing people to the board, directors, etc.
Meanwhile, the current board, including co-CEO Lee Sung Soo (aka Chris Lee), LSM's nephew (this is also going to be important) is in a strategic alliance with private equity firm Align Partners (AP), and Kakao, in attempting to bring Kakao on as a secondary investor at 9.05% of SM stock.
One actually important fact we have learned since all of this went down is that their is now a date set for the hearing about the injunction that is stopping the sale of stock to Kakao. This will go before the court on February 22nd.
While there have been a few rumors speculating that Kakao will also submit a tender offer to current minority shareholders, this has not yet materialized. One theory (not mine) is that making a tender offer right now would undermine their legal standing at that injunction.
Until the hearing happens, it is unlikely we will know anything about Kakao's further plans. Analysts are predicting that if LSM wins (i.e. no shares are issued to Kakao), they will pull out of this mess completely. However, if Kakao wins, it is possible they do attempt to take on Hybe's plans for a super-majority with their own tender.
We genuinely won't know until we know.
Across town, Hybe is moving forward like they will be the people in charge, and frankly I expect them to be.
On February 13th, Hybe CEO Park Ji Won gave an internal briefing to all Hybe employees explaining the acquisition, and reportedly guaranteed that SM would be independently operated, though Hybe will support them to expand even further.
It is reported that this presentation was then shared with SM employees who, aside from one outspoken VP of Legal Counsel who was subsequently let go, were still -- by a large majority -- against this Hybe takeover.
Rumors flew around over the next few days about who Hybe would be recommending for the board of directors during the SM shareholders meeting on March 31st. Two names rose to the top of the speculation list, Chairman of the Hybe board Bang Si Hyuk (aka Bang PD) and CEO of Ador Min Hee Jin. However, Hybe quickly shot those rumors down, saying they were both too busy to serve on SM's board.
Two days later on February 15th, Hybe sent out their proposal for Board of Directors candidates. This was to comply with Align Partners' imposed due date of the 16th. Crucially, they did not make any recommendations for two positions: CEO and Chairman of the Board.
This is where things start getting juicy.
I had predicted a bunch of suits and countersuits, but up through the 15th, the Kakao/SM/AP alliance had remained suspiciously quiet.
Not for much longer.
On the 14th, AP CEO Lee Chang Hwan went on TV program to decry Hybe's tender offer, saying it was too low. Note: at the time they made it, SM shares were trending at ~98,000 won, so they were very clearly paying a premium. In my opinion, this was a lukewarm appeal to the minority owners to hold onto their shares, which probably didn't do much to persuade anyone.
However that proved to simply be an opening volley.
On Feb 15th, the same day Hybe submitted their proposal, Lee Sung Soo posted a video to his personal YouTube making several serious allegations against his uncle including that he pocketed an extra 6% of profits off of groups such as Aespa, WayV, and Super M, and then made serious claims of Tax Evasion.
He also called out Hybe for not knowing about LSM's overseas shell company, CT Planning, that was allowing him to funnel more money away from SM Entertainment and contributing to his tax evasion. Lee alleged that Hybe didn't do proper due diligence.
More hilariously, he mentioned that the reason Aespa's comeback was delayed was because LSM's desire to have them sing about environmental issues, and that they were visibly upset with key phrases in the lyrics such as "greenism". Lee also alleged that LSM dreamed of "kpop cities" with casinos and weed.
Weed is a huge cultural (and legal) no-no in Korea so this is a bigger blow over there than it would be in many places.
Predictably, the memes are amazing.
In response to the claims of offshore tax evasion, the National Tax Service has begun an inquiry, saying it is obliged to verify the facts when these claims are raised. Outcome on this is extremely TBD.
Hybe also issued their own statement regarding these allegations, basically saying they weren't aware of the contract with CT Planning, and that the terms of their agreement allowed all SM-related contracts with LSM to be terminated. They also (rightfully) pointed out that they weren't the ones who signed the contract in the first place, and that they would be investigating who allowed this to happen.
Lee wasn't done, though.
First, it was announced on February 16th that SM was considering selling off some non-music subsidiaries, with analysts believing this was to erase LSM's shares in those subsidiaries and further neutralize Hybe's tender offer.
Second, in another YouTube video released on the 17th, Lee announced he would step down as CEO at the March 31st Shareholders meeting, so that he could return to his "main job" as a music producer, and addressed Lee Soo Man directly, asking him to kneel down with him and "beg forgiveness from everyone."
While this really reads as dramatics, Lee's alliance seems to be gaining ground in their efforts to diminish the reputation of LSM -- and therefore his alliance with Hybe.
Because while he was kneeling, Dispatch published a 118 point article detailing all the ways LSM has basically defrauded SM Entertainment to the tune of over half a billion dollars.
Many of these points were well known and documented, including the Tax Evasion scandal of 2000 that had him being put on Interpol's wanted list.
Yes, that is a real thing that happened.
However, Dispatch also broke down the profits that Like Planning were raking in (instead of being paid out to SM investors), and basically backed up what Align Partners had been saying all along: LSM was draining SM Entertainment dry. They also reiterated Lee Sung Soo's claims of tax evasion.
Those claims were further backed up by an SM employee council press release that supported the current board , stated they would resist a hostile takeover by Hybe, and said they had evidence of the illegal tax evasion and abuse of power by LSM. It's important to note they did not (yet) make this evidence public.
Once again, this has Hybe and Lee going back and forth over who is ultimately responsible for this contract with CT Planning (the overseas company owned by LSM). Lee keeps mentioning Hybe has failed in due diligence, Hybe continues to be like "yo, we didn't sign the contract, y'all did."
Is any of this mudslinging going to matter in the battle between Evil Alliance #1 and Evil Alliance #2?
Maybe. There is a possibility that having the "moral high ground" will be enough of a justification for the minority shareholders to hang on to their stake in SM. Or that these claims of tax evasion will turn enough regulators' heads that the deal with Hybe ends up being scrutinized more than it would be. Korea is a very image-conscious cultural, so these allegations could potentially create enough public backlash and PR problems that Hybe has to halt their plans.
Honestly, though, that all feels like a longshot to me. I doubt any of this makes a material difference to the Hybe takeover.
However, there is one thing that could prove to be an unexpected foil to the Hybe juggernaut.
Hybe made their tender offer to both LSM and the minority shareholders at 120,000 per share. This offer is good through March 1st.
As of February 17th, SM Entertainment stocks are trading at 130,100 per share.
If you accepted Hybe's offer right now, you would be selling for less than you could get on the open market.
Will SM's stock price stay this high? No idea. Analysts suspect it's mostly a reaction to the news of a takeover, whether it's Hybe or Kakao. If that fervor cools, it certainly could drop back down below 120,000.
But I would bet that smart shareholders are sitting tight and waiting to see what happens. After all, we only have 5 more days until we learn more about the Kakao injunction, so there's no reason to rush into anything.
Truly, you couldn't write a crazier episode of television.
And that's where we are as of 5pm MST on February 17. I will probably do my next update on the 23rd, after we learn more about the Kakao injunction, unless something even bigger and crazier happens.
UPDATE: Part 6: The court and public opinion. All rise!
