The founding father? Suing his own brainchild? Sheesh.
On February 7, 2023, it had been reported that Kakao had acquired 9.05% of SM Entertainment for 217.2 billion won ($172.8 million). This acquisition then makes Kakao the second largest shareholder of the famed multinational K-Pop entertainment agency, second only to Lee Soo-man, the company’s founder, with 18.5%.
SM Entertainment and Kakao’s partnership aims to strengthen their presence in the music and content scene to make their “beyond Korea” dream a reality. Apart from this, Kakao and SM Entertainment also signed an agreement to produce new K-Pop artists and music, as well as use the intellectual property of SM Ent. to develop new content for global consumption.
Bae Jae-hyun, the CEO of Kakao Community Investment said in a statement, “Through this investment and cooperation, we expect that the two companies will be of great help to each other in responding to the fierce competition in the global music and content market and targeting the global mainstream of K-Content.”
In another press release, Lee Sung-su and Tak Young-jun, co-CEOs of SM Entertainment, stated, “We hope to secure strong growth momentum through the agreement with Kakao so that SM Entertainment may become a leading entertainment company globally.”
However, this news did not sit well with SM Entertainment’s founder and largest shareholder, Lee Soo-man.
Lee Soo-man’s legal firm and advisers from Hwawoo, shared a statement which they pointed out that SM Entertainment and Kakao had [allegedly] used illegal methods to provide the latter company with the necessary shares to acquire part of the former.
“…On January 20 of this year, SM Entertainment’s co-CEOs Lee Sung-su and Tak Young-jun agreed to Align Partners’ (shareholder activist fund) proposal without consulting Lee Soo-man, the largest shareholder in the company. This action thus further increased the tension and management disputes between the company and the largest shareholder, Lee Soo-man.
It is clearly a violation of commercial law and the articles associated with the law for SM Entertainment’s board of directors, which is led by the co-CEOs, to issue new shares and convertible bonds to third parties at a time when there is such a dispute within the company.
SM Entertainment’s board of directors unilaterally distributed new shares and convertible bonds to the third party (Kakao) in order to expand their reach and make things more favorable to them as they attempted to secure a competitive edge in controlling the direction of the company. As the legal firm of the largest shareholder, we will block SM Entertainment’s board of directors’ attempts at this through an injunction, banning the issuance of new shares and convertible bonds and we will hold the directors responsible for this both civilly and criminally liable.”
Welp, it’s that serious.
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