Kakao Becomes Second Largest Shareholder of SM... Establishes Strategic Partnership

[Asia Economy Reporter Lee Jung-yoon] SM, Kakao, and Kakao Entertainment have agreed to form a strategic partnership across various fields and simultaneously signed a tripartite business cooperation agreement along with a contract for Kakao and SM to acquire new shares and convertible bonds (CB).

On the 7th, SM announced that it will raise 111.9 billion KRW by issuing 1.23 million new common shares to Kakao through a third-party allotment at 91,000 KRW per share, and will issue convertible bonds worth 105.2 billion KRW. Through the conversion of these convertible bonds, Kakao can additionally secure 1.14 million SM common shares, becoming the second-largest shareholder with a 9.05% stake in SM after conversion.

SM and Kakao have concluded the inquiry disclosure that had been ongoing since May 2021 on a happy ending, agreeing to pursue synergy through strategic alliances and to promote comprehensive business cooperation as long-term partners.

The three companies agreed to pursue mutual strategic joint benefits by leveraging each other's business strengths through this investment and business cooperation. They plan to maximize synergy by jointly planning K-pop artists through global auditions and jointly promoting global management businesses locally overseas. Additionally, they will continue multifaceted cooperation in their music businesses, including global album and music production and distribution.

By combining SM's strong intellectual property (IP) with the various platforms and artificial intelligence (AI) technologies owned by Kakao, they plan to accelerate IP monetization by enhancing content competitiveness and expanding global market share. Kakao, as a business participant, will utilize the Seoul Arena, which is planned to be constructed, to contribute to the development of the domestic performance culture ecosystem and the revitalization of the local economy.

SM plans to aggressively invest the funds raised this time into its SM 3.0 strategy, including global music publishing business, global business expansion, and acquisition of domestic and overseas labels. This is expected to accelerate the execution of the SM 3.0 strategy announced on the 3rd. SM co-CEOs Lee Sung-soo and Tak Young-joon stated, "Through this strategic alliance with Kakao, we expect to secure a powerful growth engine for SM to develop into a global leading entertainment company."