A hostile takeover of South Korean music label SM by rival Hybe, which manages global boy-band sensation BTS, is heading to a ballot. The fierce saga exposes corporate governance woes that plague Asia, but also some unlikely progress, says mak_robyn
The septuagenarian Lee is fighting back. He challenged Kakao's investment in court. Moreover, he sold the bulk of his shares to SM's top competitor, Hybe. The $5.8 billion company has been diversifying to reduce its reliance on BTS, which analysts at NH Investment & Securities estimate accounted for 70% of revenue in 2021. With members of the band set to serve South Korea's mandatory military service, Hybe is now eyeing an additional 25% stake in SM through a tender offer.
Kakao has yet to announce its next move, but the prospects of the super-app operator coming in to derail Hybe’s effort has helped power a whopping 60% stock rally at SM this year alone. The enterprise now trades at roughly 16 times forecast EBITDA for the next 12 months, according to Refinitiv, nearly double its five-year average, but still a discount to peers. Hybe trades at 24 times and JYP Entertainment's fetches 18 times.Hybe's hostile takeover.
Some of the fears may be overblown, however. Hybe will be splashing out over 1 trillion won, more than half its forecast 2023 net cash pile, for the 40% shareholding in SM, so it would be in the buyer’s interest to improve SM financially. To that end, Hybe has also proposed other changes, including splitting the chairman and CEO roles.Hybe has yet to detail strategic plans for its target, however.
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