[SM Management Battle] Kakao Wins... SM Restructuring Begins

Lee Chang-hwan CEO "SM to Sell Non-Core Subsidiaries"
Considering Mergers and Acquisitions of Korean and US Agencies

On the 12th, as Kakao and HYBE put an end to the acquisition battle for SM Entertainment (SM), Lee Chang-hwan, CEO of Align Partners Asset Management, who ignited this dispute, stated, "Approximately 1 trillion KRW in funds is needed to realize SM 3.0, and to secure this, the sale of SM subsidiaries will be pursued."

Lee Chang-hwan, who pointed out SM's governance structure and triggered the management rights dispute, will serve as a non-executive director on SM's board following a shareholders' meeting at the end of this month, in accordance with the agreement between Kakao and HYBE. Lee explained, "Although it will be decided by the newly formed board, we are considering selling non-core SM subsidiaries excluding Dear U."

According to Lee's explanation, timely investment to implement SM 3.0 requires securing funds on the order of 1 trillion KRW. Currently, 150 billion KRW of SM's internal cash reserves and 150 billion KRW of future operating cash flow will be utilized. The sale of non-core assets is expected to raise 280 billion KRW, and 200 billion KRW will be borrowed. Kakao, which rose from a strategic business partner to the largest shareholder, had planned to invest about 220 billion KRW through new share subscriptions, but this was canceled due to a court injunction, prompting the search for alternative investment plans.

SM plans to accelerate the securitization of assets with low relevance to its core business and low profit contribution. The plan is to actively securitize within one year and then invest in a new growth portfolio. Through SM Studios, SM is expected to drive the sale of shares in non-core subsidiaries such as SM C&C (29.56%) and KeyEast (28.38%).

While organizing non-core assets related to its main business, SM plans to pursue global mergers and acquisitions (M&A) related to the music business. U.S. agencies are being prioritized for review. Investments of up to 200 billion KRW are being prepared, with 3 to 5 companies currently under consideration. Domestically, M&A is being reviewed targeting 5 to 7 companies with a scale of up to 100 billion KRW.