There is a lot of change and consolidation happening in the K-Pop industry right now.
On Wednesday (February 22), HYBE, the company behind acts like BTS and New Jeans, completed a deal to acquire a 14.8% stake in its rival SM Entertainment, which is behind stars like NCT, EXO and Aespa.
The deal, worth 422.8 billion South Korean won (approx. $335 million), means that HYBE is officially the largest single shareholder in SM Entertainment, having acquired those shares from the company’s founder Lee Soo Man.
In an open letter confirming the completion of the deal to buy the 14.8% stake, HYBE CEO Jiwon Park outlined what he believes are the similarities between HYBE and SM and noted that, “this is an era of change for both companies”.
He also shared the company’s ambitions for K-Pop and specifically for HYBE and SM Entertainment’s positioning in the global music business, writing that the “global music industry is undoubtedly paying close attention to K-pop and its international success”.
He added: “It still has so much possibility to reach a greater fanbase with more content and experiences to offer. K-pop flourished in an environment where we could challenge ourselves. We should conserve the ground so that we can stand shoulder-to-shoulder with the world’s major record labels.”
His letter follows the publication of the company’s latest financial results, in which it revealed that its annual revenues grew 41.6% YoY to 1.77 trillion South Korea Won (USD $1.37 billion) in 2022.
HYBE has previously revealed in a filing that it intends to up its 14.8% stake in SM to around 40% of the company, by purchasing another 25.2% of SM Entertainment’s shares for a total of 1.14 trillion South Korea Won (USD $900 million USD) from minority shareholders.
It has launched a tender offer to do so.
SM Entertainment’s current management have come out in opposition of the plan, however, with HYBE’s acquisition of Lee Soo Man’s shares arriving amidst tension between SM’s leadership and its founder.
News of the deal closing comes a few days after SM Entertainment CFO Jang Cheol Hyuk published a video on YouTube in which he slammed HYBE’s takeover bid, arguing that it would lead to the latter company’s monopolization of the K-Pop industry.
He explained in detail why SM Entertainment’s management opposes a takeover by HYBE – noting in particular that he believes HYBE artists will be prioritized over SM Entertainment artists if the firms were to be combined.
“Integrating HYBE and SM’s creative capabilities and content-oriented culture will showcase a historic innovation in the global scene”.
Jiwon Park
Elsewhere in the new letter from HYBE CEO Jiwon Park, he argues that “integrating HYBE and SM’s creative capabilities and content-oriented culture will showcase a historic innovation in the global scene”.He also addressed concerns, “that fans, artists, employees, and shareholders of SM have, due to rumors and speculations around the company”.
He added: “I would like to express my regret to SM artists in particular, who may have been troubled by the turn of events. We respect SM’s artists as much as we do our artists at HYBE. Leveraging the expertise we have accumulated, we will do our best to create a brighter future for all artists under SM.”
Meanwhile, SM Entertainment, alongside an announcement for its 2023 Annual General Meeting, doubled down on its opposition to what it calls HYBE’s “hostile M&A”.
The company also announced today that it aims to generate 1.2 trillion South Korea Won (approx $923m at current exchange rates) in revenue and 430 billion South Korea Won in operating profit by 2025, with a target stock price of 360,000 South Korea Won, with the additional goal of tripling its corporate value over the next three years through the implementation of its “SM 3.0” strategy.
SM Entertainment recently reported an 18.2% year-over-year rise in revenue in Q4 2022 to 256.4 billion South Korea Won (USD $197.7 million).
You can read HYBE CEO Jiwon Park’s letter in full below.
Dear SM Entertainment fans, employees, artists, and shareholders, I am Jiwon Park, CEO at HYBE.
I am pleased to share that today, February 22, 2023, HYBE completed the acquisition of a 14.8% stake in SM Entertainment (“SM”) held by SM’s founder and former Chief Producer Lee Soo-man, and became the single largest shareholder in SM.
As promised on February 10, HYBE resolved the governance issue between former Chief Producer Lee’s and SM, during the course of the share acquisition.
SM will be moving to become a company with a transparent governance structure that prioritizes shareholder value. I would like to share more details on the similarity between HYBE and SM’s corporate philosophy, and the synergy we can collaborate to create in the coming future.
Collaborative Innovation based on Mutual Corporate Philosophy
As leaders and pioneers of the K-pop industry, both HYBE and SM have been triumphing on the global stage. HYBE’s vision to become a leading global entertainment lifestyle platform company under its mission “we believe in music” is closely interconnected with the goal of SM 3.0 to ‘leap forward as a fan- and shareholder-centered global entertainment company’. Additionally, integrating HYBE and SM’s creative capabilities and content-oriented culture will showcase a historic innovation in the global scene.
Allowing Complete Autonomy of Creative Work based on Multi-Label System
HYBE has been successfully operating its multi-label system by giving autonomy to respective labels.
Our key factor behind the success is to guarantee complete autonomy over the creator’s work with passion. HYBE does respect SM’s legacy and creative values. We will share our business model and networking capacities with SM to help its distinct, creative work lead the world.
Leaping Forward as a Game Changer on the Global Stage
Leveraging our expertise and global network, HYBE will actively support SM artists’ endeavors in making a presence in the global music industry. Both companies will work together towards establishing the global ground where our artists can introduce their music. We can share our experiences that have ultimately led us to our leading position in the global K-pop scene including the United States, South America, and India. HYBE will also be able to benefit from SM’s wealth of experience from their artists’ success in China, Japan, and Southeast Asia. With our collaborative effort, we can become the most innovative game changer in the global music industry.
Two leading fandom platforms, HYBE’s Weverse and SM’s Bubble, will expand beyond Korea and compete in the global arena. We will also create new opportunities leveraging the two companies’ capabilities in solution business pipelines, from concert, distribution and original story IP to business development. The global music industry is undoubtedly paying close attention to K-pop and its international success. Yet it still has so much possibility to reach a greater fanbase with more content and experiences to offer. K-pop flourished in an environment where we could challenge ourselves.
We should conserve the ground so that we can stand shoulder-to-shoulder with the world’s major record labels. Last but not least, I am aware of the concerns that fans, artists, employees, and shareholders of SM have, due to rumors and speculations around the company. HYBE fully respects the direction laid out in SM 3.0 growth strategy, as well as the value and vision SM’s employees and artists have created. I would like to express my regret to SM artists in particular, who may have been troubled by the turn of events.
We respect SM’s artists as much as we do our artists at HYBE. Leveraging the expertise we have accumulated, we will do our best to create a brighter future for all artists under SM. This is an era of change for both companies. We wish any short-term business decisions or prejudgement by some leaders would no longer cause confusion and uncertainty.
I hope the management can come to a wise and reasonable conclusion to ensure that our shared visions and business directions are on the right track. As stated in our DNA, ‘Win Together, HYBE is full of winning spirits on succeeding together. We hope to enjoy more success with fans, employees, artists, and shareholders of SM in the coming future. If we work side by side, we can continue to lead K-pop’s global phenomenon.
Thank you. Sincerely, Jiwon Park HYBEMusic Business Worldwide
