Kakao Becomes Second Largest Shareholder of SM Entertainment... Management Dispute Intensifies

Lee Soo-man's Side "Will Hold Legally Responsible"

[Asia Economy Reporter Seongpil Cho] The management rights dispute has intensified as Lee Soo-man, the chief producer and largest shareholder of SM Entertainment, announced legal action against the SM Entertainment co-CEOs and the board of directors after transferring 9.05% of his shares to Kakao.

On the 7th, the law firm Hwawoo, representing Lee Soo-man, issued a statement saying, "In a management rights dispute situation, issuing new shares or convertible bonds to a third party with the purpose of affecting the company's control or management rights infringes on shareholders' preemptive rights and is illegal," adding, "This has been clearly confirmed through numerous rulings by courts at all levels, including the Supreme Court."

They continued, "As the largest shareholder's agent, we will fundamentally block the SM board's illegal attempts by seeking an injunction to prohibit the unlawful issuance of new shares and convertible bonds," and added, "We will hold all directors who supported the illegal resolution legally responsible in both civil and criminal matters."

Earlier, Kakao announced that it had secured a 9.05% stake in SM. Kakao acquired 1.23 million new shares issued by SM through a third-party allotment paid-in capital increase and secured 1.14 million shares (based on common stock conversion) through convertible bond acquisition. Through this investment, Kakao becomes SM's second-largest shareholder. Contrary to initial predictions that Kakao would acquire Lee Soo-man's shares, Kakao chose to invest directly in SM.

Both parties agreed to pursue mutual strategic benefits by leveraging their respective business strengths. They plan to jointly plan K-pop artists through global auditions and promote global management businesses together in overseas local markets to maximize synergy between the companies. They also intend to continue multifaceted cooperation in their music businesses, including global production and distribution of albums and digital music.

By combining SM's strong intellectual property (IP) with Kakao's diverse platforms and artificial intelligence (AI) technologies, they aim to accelerate IP monetization by enhancing content competitiveness and expanding global market share. Kakao, as a business participant, plans to contribute to the development of the domestic performance culture ecosystem and regional economic revitalization by utilizing the Seoul Arena, which is scheduled to be constructed.

SM plans to aggressively invest the funds raised this time in its SM 3.0 strategy, including global music publishing business, global business expansion, and domestic and overseas label acquisitions. 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 partnership with Kakao, we expect to secure a strong growth engine for SM to develop into a global leading entertainment company."