[Exclusive] SM to Sell Shares After Absorbing Like Planning, "Welcoming New Owner"

Like Planning Absorption Merger + Over 20% Stake Sale Simultaneously 진행
CJ ENM Likely New Owner Over Kakao Entertainment
Sale Scale Predicted at 750 Billion Won "Deal to Close Within Two Months if Price Negotiation Succeeds"

Lee Soo-man, SM Chief Producer.

[Asia Economy Reporter Lee Seon-ae] SM Entertainment (SM) has officially entered the 'search for a new owner.' It plans to absorb and merge Like Planning, a company wholly owned by its largest shareholder and Chief Producer Lee Soo-man, and sell more than 20% of its total shares, including Lee’s 18.72% stake, effectively expanding the scale of the deal. If the transaction is completed, SM’s management rights will change hands. The new owner is expected to be CJ ENM.

According to the investment banking (IB) industry on the 25th, SM will absorb and merge Like Planning and then sell more than 20% of its shares, including Chief Producer Lee’s 18.72% stake and approximately 5% of other shares. Currently, the value of Lee’s shares is estimated at around 300 billion KRW. After merging Like Planning and including other shares, the sale price is expected to increase. The market anticipates about 750 billion KRW. This would raise SM’s corporate value to 4.2 trillion KRW.

Like Planning, which handles producing tasks, is a company 100% owned by Chief Producer Lee. In 2019, KB Asset Management, a shareholder of SM at the time, demanded through an open shareholder letter that Like Planning be merged into SM. The reasoning was that Lee, who is not a registered executive, was receiving over 10 billion KRW annually under the pretext of music consulting through Like Planning, which he wholly owns, without paying dividends, raising concerns about internal transactions. However, SM ultimately rejected the merger proposal with Like Planning, causing controversy. At that time, an accounting firm estimated Like Planning’s corporate value to be about 100 billion KRW.

An IB industry official said, "Chief Producer Lee has a strong intention to sell all his shares to a company that can enhance SM’s competitiveness without passing on management rights." He added, "The sale transaction will proceed simultaneously with the absorption merger of Like Planning, and if the parties agree on the price, the deal will be completed within two months."

The acquisition is essentially a two-way competition between Kakao Entertainment and CJ ENM. However, Lee’s intention leans more toward CJ ENM. Founded by Lee in 1995, SM is known as one of the large domestic entertainment companies with a strong owner identity. SM was the first to establish the concept of a K-POP agency, and Lee has maintained ownership for over 26 years, being respectfully called 'Teacher Lee Soo-man' or 'Chairman Lee Soo-man' by employees. Given his strong affection for SM, he wants to sell to a company that can grow SM well. Therefore, there is analysis that CJ ENM has a better chance than Kakao Entertainment. It is also reported that Vice Chairman Lee Mi-kyung of CJ has already made contact with Chief Producer Lee.

An IB industry official said, "Because Chief Producer Lee has considerable affection for SM, the share sale will be conducted carefully and prudently," adding, "From CJ ENM’s perspective, this could be the largest deal, so it will be a cautious transaction."

For CJ ENM to become the buyer, it must meet the mandatory shareholding ratio under the Fair Trade Act for subsidiaries and sub-subsidiaries (20% for listed companies, 40% for unlisted companies). This means CJ ENM, a subsidiary of holding company CJ, must secure more than 20% of SM’s shares, which will become a sub-subsidiary. They need to carefully evaluate the multi-billion KRW purchase funds and the synergy value with the acquiring company, and time will be required to prepare the resources once a decision is made.

From CJ ENM’s perspective, SM is an attractive acquisition. Combining its production capabilities with SM’s artists and intellectual property (IP) can create enormous synergy. However, if disagreements over the sale price are not easily resolved, the deal could take a long time to conclude.

An IB industry official said, "Negotiations with CJ ENM are underway, and CJ ENM is showing significant interest, but since investing over 300 billion KRW would be the largest M&A deal for CJ ENM, they must be cautious." He added, "If disagreements over the sale price are not resolved, the deal could effectively fall through, and the search for SM’s new owner could become a lengthy process."