[SM Management Battle] Only Up to 35% Tender Offer... What’s the Outlook for SM Stock Price?

Kakao Tender Offer Expected to Stabilize Downward After Completion
SM Fair Stock Price Consensus at 124,056 Won

The intense standoff between HYBE and Kakao over the acquisition of SM Entertainment (SM) has come to an end after about a month, drawing attention to the direction of SM's stock price. There is a prevailing expectation that SM's stock price will undergo a strong correction following Kakao's tender offer.

As of the closing price on the 10th, SM's stock price stood at 147,800 KRW. Its market capitalization is 3.5192 trillion KRW, ranking 7th on the KOSDAQ. Looking at the stock price trend over the past year, it rose from a low of 57,500 KRW in May last year to a high of 161,200 KRW in March this year. The stock price, which had overheated due to the management rights dispute, is expected to undergo a downward adjustment as Kakao gains the upper hand.

Kakao is conducting a tender offer at 150,000 KRW per share until the 26th of this month. SM's stock price is expected to face strong correction starting from the 26th, when the tender offer ends. The securities industry views the tender offer price of 150,000 KRW as close to a price-earnings ratio (PER) of 40 times for SM, and anticipates that after the management rights dispute concludes, reflecting improvements in governance and enhancement of corporate value, the PER will stabilize downward around 35 times. Kim Hyun-yong, a researcher at Hyundai Motor Securities, said, "After the management rights dispute ends and the stock price stabilizes to some extent, we expect a PER level of about 35 times."

According to financial information provider FnGuide, the consensus fair value for SM's stock price is 124,056 KRW. The tender offer targets only up to 35% of the total shares, while the freely traded shares excluding stakes held by HYBE, Kakao, and others account for about 70% of the total shares. The remaining shares exceeding the 35% stake Kakao announced for the tender offer will be handled on a pro-rata basis even if shareholders wish to participate fully. This means that even if shareholders want to respond to the tender offer in full, they may not be able to do so.

The handling of the 15.78% stake acquired by HYBE is also expected to impact SM's stock price. Since HYBE has agreed to platform cooperation without acquiring management rights of SM, it is likely to retain a certain portion of shares and sell the rest to Kakao.