SM Management Rights Legal Dispute Escalates... Lee Soo-man Returns Urgently and Initiates Legal Action

Lee Soo-man Takes Legal Action Against SM
Files Injunction to Ban New Shares and Convertible Bonds Issuance

[Asia Economy Reporter Kim Heeyoon] Lee Soo-man, the major shareholder and founder of SM Entertainment, has urgently returned from overseas and initiated legal action by filing an injunction against SM.

'SM Sustainability Forum' General Producer Lee Soo-man. [Photo by SM Entertainment]

On the 8th, Hwawoo Law Firm, Lee Soo-man's legal representative, announced that it had submitted an injunction petition to the Seoul Eastern District Court in the afternoon, seeking to prohibit the issuance of new shares and convertible bonds.

In a press release, Hwawoo stated, "When issuing new shares and convertible bonds to a third party who is not an existing shareholder, it must be necessary to achieve business purposes, and the method chosen should minimally infringe on shareholders' preemptive rights to the extent necessary to achieve such purposes. However, the resolution to issue new shares and convertible bonds this time is an illegal resolution that fails to meet both of these requirements."

On the 7th, SM's board of directors held an emergency meeting and resolved to issue approximately KRW 111.9 billion worth of new shares and KRW 105.2 billion worth of convertible bonds to Kakao through a third-party allotment, escalating the conflict. While Kakao secured about 9.05% of SM's shares, becoming the second-largest shareholder, Lee Soo-man's stake in SM currently stands at 18.46%, making a decline in his shareholding inevitable.

Following the news of the partnership between SM and Kakao, Lee Soo-man, who was overseas, pointed out the illegality. Hwawoo explained, "Since the payment date for the new shares and the issuance date for the convertible bonds resolved by SM's board is June 6 next month, we requested the court to grant the injunction before that date and to promptly schedule a hearing."

Lee Sung-soo, co-CEO of SM Entertainment, is being interviewed by Asia Economy on the 9th. / Photo by Moon Ho-nam munonam@

As the controversy intensified, SM emphasized that the restructuring of the producing system and Kakao's investment are for the company's future. Previously, Lee Soo-man had drawn criticism for earning about KRW 150 billion through his personal company Like Planning, established under the name of SM producing services for 22 years. This led to concerns that Lee Soo-man's personal business negatively affects the company's profitability.

SM declared a structural reform through collaboration with Kakao to revamp producing. On the 3rd, in an official YouTube video, co-CEO Lee Sung-soo stated, "Through SM 3.0, we will acquire labels in various genres such as ballad, R&B, and hip-hop, which SM has not focused on, to expand our musical spectrum."

Lee Soo-man returned on the 7th and is reportedly hospitalized for a fractured arm. The music industry views this as Lee Soo-man's full-scale response to SM 3.0, which centers on restructuring that excludes him from producing, and to the sale of SM shares to Kakao.

The turning point of the internal conflict is expected to be the shareholders' meeting scheduled for next month. It is known that Lee Soo-man, as a major shareholder, is considering shareholder proposals challenging the board restructuring plan and disputes with the current management, including CEO Lee Sung-soo.

Furthermore, as Lee Soo-man has taken legal action, the conflict between both sides is expected to continue until the court's decision is made.