SM Stake Sale by 'Kangta'... Deepening Shareholders' Concerns

Kangta S.M. Stake Sale
Decision Ahead of Align's Response
Shareholders' Concerns Deepen Amid Stock Price Decline

[Asia Economy Reporter Hwang Junho]"Target price 110,000 won VS. sell at 70,000 won range."

Kangta (real name Ahn Chil-hyun), a singer from H.O.T, made a huge profit by selling SM shares. Recently, as he ended his relationship with Executive Producer Lee Soo-man, shareholders were left puzzled by his decision to sell SM shares despite the target price rising significantly.

According to the Financial Supervisory Service's electronic disclosure system on the 29th, Kangta, who serves as a non-executive director and creative director at SM, sold 2,300 of his 6,000 shares on the market between the 22nd and 26th. The disposal price ranged from 76,200 to 79,500 won per share. Kangta exercised his stock options for 6,000 shares in July at an exercise price of 42,640 won, earning a profit of 81 million won from this sale. Jang Jae-ho, CSO in charge of IR, also sold 8,000 shares (including stock grants) received as bonuses. Shares acquired at 75,500 won were sold at 77,800 won. Following the disclosure of their sales, SM's stock price dropped 7.25% to 67,800 won on the 18th compared to the previous day.

Their share disposals could be seen simply as profit-taking in a declining market. However, it is interesting that this occurred just before the termination of the contract with Like Planning, which caused fluctuations in SM's stock price throughout the year. Despite the possibility of a significant stock price increase, the management proceeded with selling shares.

Source: SM

On the 15th, SM announced it was considering early termination of the contract with Like Planning and explained in a press release, "Regarding Executive Producer Lee Soo-man's intention to end the producing contract early, we plan to hold thorough discussions with stakeholders about future business directions and announce our position later." Like Planning is Lee Soo-man's personal company, and SM has paid hundreds of billions of won annually to Like Planning, which has been pointed out as a factor limiting SM's stock price rise.

The securities industry also welcomed this. Hanwha Investment & Securities estimated that the fees SM paid to Like Planning over the past seven years totaled 98.3 billion won, and considering this, operating profit could increase by 29.7 billion won next year. Hana Securities further projected a market capitalization of 30 trillion won (previously 15.3 trillion won) and raised the target price to 110,000 won.

With a potential stock price boost expected as soon as the 30th, the fact that SM's key executives sold shares suggests a decision made with something other than just money in mind. Activist fund Align Partners Asset Management, which has focused on the termination of the relationship with Like Planning, requested SM to complete related definitive disclosures by the 30th of this month.

Align stated, "We have requested definitive disclosure by the 30th, but this is not legally binding," adding, "More important than the deadline is the content itself regarding the termination of the relationship with Like Planning." They further commented, "We do not expect results different from SM's previous disclosures."