HYBE × SM Entertainment vs Kakao — Korea's First Competitive Public Tender Offer
A six-week K-pop control battle that began with founder Lee Soo-man's 14.8% stake · ₩120,000 vs ₩150,000 per share · HYBE withdraws, Kakao consolidates 39.87% of SM
Background
SM Entertainment, founded by Lee Soo-man in 1995 and listed on KOSDAQ in 2000, is the prototype of Korea's first-generation K-pop agency. Its 30-year artist pipeline — H.O.T., BoA, TVXQ, Super Junior, Girls' Generation, EXO, NCT, aespa — built the template that the entire Korean entertainment industry has since followed. SM led both Hallyu 1.0 (BoA and TVXQ into Japan) and Hallyu 2.0 (EXO and NCT into China and the United States), and was the first agency to formalize a six-pillar business model spanning album sales, concerts, merchandise, IP licensing, training academies and artist management.
The 2023 ouster of Lee Soo-man and the Like Planning dispute.
From the late 2010s onward, SM had drawn sharp criticism from activist investors — Align Partners and KB Asset Management chief among them — over the producing royalties siphoned each year to Like Planning, a private entity wholly owned by Lee. Like Planning collected a fixed percentage of SM's album revenue as a "producing advisory fee," effectively diverting hundreds of billions of won from public shareholders to the founder personally. In January and February 2023, the internal SM board (co-CEOs Lee Sung-su and Tak Young-jun) terminated the Like Planning contract and forced Lee Soo-man out of management, announcing a transition to "SM 3.0" governance. In retaliation, Lee decided to sell 14.8% of his 18.46% personal stake to an outside hostile party.
HYBE enters on February 10, 2023.
HYBE announced the purchase of Lee Soo-man's 14.8% (approximately 3.5 million shares) at ₩120,000 per share for a total of ₩422.8 billion. The price represented a 22% premium to the prior closing price of ₩98,500. The same day, HYBE launched a public tender offer for an additional 25.0% at the same ₩120,000 price, targeting a combined 39.8% stake. With the management agency behind BTS attempting to absorb its largest rival, markets immediately repriced K-pop as a single-camp industry.
The SM board's white-knight defense on February 7.
HYBE's February 10 announcement was effectively a counter-punch. Three days earlier, on February 7, the SM board had resolved to issue ₩111.9 billion of new shares (approximately 4.91%) and ₩105.2 billion of convertible bonds (approximately 4.14%) to Kakao — a combined 9.05% stake delivered to a friendly party. The stated rationale was a "strategic partnership with Kakao's music platform Melon," but the substance was a textbook white-knight equity issuance designed to dilute the founder's stake and block a hostile takeover. Lee Soo-man filed for an injunction in Seoul Eastern District Court the following week.
The court's first blockage, February 22, 2023.
On February 22, the Seoul Eastern District Court granted the injunction blocking the share and CB issuance to Kakao. The reasoning relied on Article 418, Section 2 of the Korean Commercial Code: new shares are reserved by default for existing shareholders' pre-emption rights, and third-party private placements are permitted only when a clear management purpose is established. The court found that issuing shares and CBs to a friendly party during an active control contest, with the primary effect of securing supportive votes, did not satisfy the management-purpose test. Kakao's 9.05% stake was invalidated and the defensive camp needed a new weapon.
Kakao's competitive tender offer, March 7, 2023.
Kakao and its subsidiary Kakao Entertainment jointly launched a competitive tender offer at ₩150,000 per share — 25% above HYBE's ₩120,000 — for up to 35% of SM, capped at approximately ₩1.25 trillion. Korean capital markets had never before seen two simultaneous tender offers for the same company. SM's share price gapped up to ₩152,000 the following trading day, exceeding both bids.
HYBE's withdrawal, March 12, 2023.
Five days after Kakao's counter-bid, HYBE formally withdrew its tender offer. The press statement read in part: "We pursued the acquisition of SM Entertainment to strengthen the global competitiveness of K-pop, but a destructive price war could damage the industry as a whole. We will explore alternative forms of cooperation with Kakao." Kakao became the sole bidder. The tender offer closed on March 26 with Kakao consolidating a combined 39.87% (existing Kakao Entertainment stake plus newly tendered shares) and assuming the position of largest shareholder. Lee Soo-man tendered his remaining roughly 35,000 shares into the Kakao bid at ₩150,000, locking in a 25% premium over the ₩120,000 he had received from HYBE. The six-week contest had permanently redrawn the K-pop industry.
Deal Summary
- Deal Value
- Lee block sale ₩422.8B + Kakao tender ~₩1.25T = combined ~₩1.67T
- Acquirer
- Initially HYBE + Lee Soo-man → ultimately Kakao + SM board (white knight prevails)
- Target
- SM Entertainment Co., Ltd. (KOSDAQ 041510)
- Announced
- Feb 10, 2023 (HYBE announcement)
- Closed
- Mar 26, 2023 (Kakao tender close)
- Country
- South Korea
Executive Summary
- [Korea's first competitive public tender offer:] In February and March 2023, two simultaneous public tender offers competed for SM Entertainment — HYBE at ₩120,000 per share and Kakao at ₩150,000 per share — the first such situation in Korean capital markets history.
- [Trigger:] On Feb 10, 2023, HYBE acquired Lee Soo-man's 14.8% (approximately 3.5 million shares) at ₩120,000 per share for ₩422.8 billion and announced a tender offer for an additional 25% at the same price, targeting a combined 39.8% stake.
- [The SM board's white-knight defense:] Three days before HYBE's announcement, on Feb 7, 2023, the SM board resolved to issue ₩111.9B of new shares (4.91%) and ₩105.2B of convertible bonds (4.14%) to Kakao — a combined 9.05% — the first defensive white-knight equity issuance in Korean K-pop.
- [The first court block:] On Feb 22, 2023, the Seoul Eastern District Court granted Lee Soo-man's injunction, invalidating the Kakao issuance on the grounds that defensive third-party placements during a control contest do not meet the "management purpose" requirement of Article 418(2) of the Commercial Code.
- [Kakao's counter:] On Mar 7, 2023, Kakao launched a competitive tender offer at ₩150,000 per share (a 25% premium over HYBE) for up to 35% of SM, capped at approximately ₩1.25 trillion.
- [HYBE withdraws:] On Mar 12, 2023, HYBE withdrew its tender offer, citing the industry-wide harm of a destructive bidding war — effectively a retreat from the price contest.
- [Final outcome:] On Mar 26, 2023, Kakao's tender closed. Combined with Kakao Entertainment's existing stake, Kakao now controls approximately 39.87% of SM Entertainment and is the largest shareholder. HYBE retained its 14.8% as residual and divested in stages through 2025 (including a large sale to Tencent Music in March 2025).
- [Lee Soo-man's arithmetic:] Sold 14.8% to HYBE at ₩120,000 (₩422.8B), then tendered his remaining 35,000 shares into the Kakao bid at ₩150,000 — a 25% premium captured by waiting six weeks. The retribution against his ouster became the most lucrative card in the deal.
- [Industry consequence:] Kakao now anchors the largest camp in K-pop (SM 39.87% + Kakao Entertainment + Starship + Antenna), squaring off against HYBE (BTS, NewJeans, SEVENTEEN, LE SSERAFIM). YG and JYP remain independent.
Industry Overview
The K-pop industry transitioned between 2022 and 2024 from an era of independent agencies to an era of conglomerate camps. The classic four-agency structure (SM, YG, JYP, HYBE) competing as standalone businesses gave way to three vertically integrated groups — Kakao, CJ ENM and HYBE — absorbing or taking strategic stakes in subordinate labels to combine streaming, talent management, concerts and merchandise under one roof. This dispute was the single most decisive inflection point in that transition.
2022 K-pop album exports
~$233M
+5.6% YoY
SM FY2022 revenue
~₩848.4B
+20.9% YoY (record high)
SM FY2022 operating profit
~₩93.5B
+38.5% YoY
SM market cap (pre-contest, Feb 9)
~₩2.0T
at ~₩84,000 per share
As of 2023, the four-agency landscape stood as follows: HYBE (BTS, SEVENTEEN, TOMORROW X TOGETHER, NewJeans, LE SSERAFIM) led the industry at roughly ₩8T market cap; SM (NCT, aespa, EXO), JYP (TWICE, Stray Kids, ITZY) and YG (BLACKPINK) clustered in the ₩1–2T range. Had HYBE successfully acquired SM, a single agency would have controlled over half of K-pop revenue — making the Korea Fair Trade Commission's merger review the largest latent variable in the deal. HYBE's voluntary withdrawal sidestepped that variable entirely.
Key Players
Company Overview: SM Entertainment Co., Ltd. (KOSDAQ 041510)
SM Entertainment was founded in 1995 by Lee Soo-man and listed on KOSDAQ in 2000. Its artist roster — H.O.T., BoA, TVXQ, Super Junior, Girls' Generation, SHINee, f(x), EXO, Red Velvet, NCT, aespa — anchors three decades of first-generation K-pop. FY2022 revenue of ₩848.4 billion (a record) broke down as roughly 35% albums, 22% concerts, 18% merchandise and licensing, 15% management, and 10% other (academies, IP business). Core IP today centers on NCT's multi-unit franchise (127, DREAM, WISH, NCT U), aespa's virtual character extension, and the long-tail catalogs of EXO, TVXQ and Super Junior. Pre-contest market cap stood at approximately ₩2.0T; as of May 2026, three years under Kakao, market cap sits around ₩1.7T.
Founded
1995
Lee Soo-man, sole founder
Listed
Apr 27, 2000
KOSDAQ (041510)
FY2022 revenue
~₩848.4B
Record high, +20.9% YoY
FY2022 operating profit
~₩93.5B
OPM 11.0%
Pre-contest market cap
~₩2.0T
As of Feb 9, 2023
Artist roster
NCT, aespa, EXO+
60+ artists, 100+ group units
Control Battle Overview
This six-week contest produced three Korean firsts simultaneously: the first competitive public tender offer, the first court block of a defensive white-knight share and CB issuance during a control contest, and the first major M&A withdrawal framed as preserving an entire industry. Round 1 (Feb 7 to 22) saw the SM board's Kakao placement invalidated by court order. Round 2 (Feb 22 to Mar 7) left HYBE temporarily unopposed. Round 3 (Mar 7 to 26) saw Kakao reset the playing field with a higher-priced competitive tender, prompting HYBE's withdrawal. The defense won — but the decisive weapon was not the new share issuance, it was a higher competing bid.
The proximate catalyst was the SM board's January–February 2023 decision to oust Lee Soo-man and terminate the Like Planning producing-fee contract, validated by two years of activist criticism from Align Partners. The ousted founder retaliated by selling 14.8% of SM to HYBE, importing an outside hostile acquirer into a fight that had originated as an internal governance dispute.
📈 Price Impact
Over the six-week contest, SM ran from ₩98,500 to a peak of ₩152,000 (+54%) before stabilizing around ₩121,000 after the tender close. The two simultaneous tender prices (HYBE at ₩120,000 and Kakao at ₩150,000) created a competitive-tender premium of roughly 54% at the peak. As of May 2026, three years into the Kakao era, SM trades near ₩88,000 — the contest premium has fully decayed, but the structural realignment of the industry persists.
🗡️ Battle Timeline
[Pre-emptive defense] Approves ₩111.9B share + ₩105.2B CB issuance to Kakao (combined 9.05%)
Three days before HYBE's announcement, the SM board resolved to issue ₩111.9 billion of new shares (4.91%) and ₩105.2 billion of convertible bonds (4.14%) to Kakao via private placement. The stated rationale was a strategic partnership with Kakao's music streaming platform Melon, but the substantive effect was to place a 9.05% block in friendly hands ahead of a hostile bid.
Acquires Lee Soo-man's 14.8% at ₩120,000 per share + announces tender offer for additional 25%
HYBE purchased 14.8% of SM Entertainment (approximately 3,500,000 shares) from founder Lee Soo-man at ₩120,000 per share, for a total of ₩422.8 billion. It simultaneously announced a tender offer for an additional 25.0% at the same price, targeting a combined 39.8% stake. The price represented a 22% premium to the previous closing price of ₩98,500.
Files injunction in Seoul Eastern District Court against the Kakao share and CB issuance
Citing his residual roughly 3.7% stake, Lee Soo-man filed for an injunction blocking the SM board's February 7 share and CB issuance to Kakao. The petition relied on Article 418(2) of the Korean Commercial Code, arguing that third-party private placements during a control contest, undertaken to secure friendly votes, do not satisfy the statutory "management purpose" requirement and unlawfully impair existing shareholders' pre-emption rights.
[Injunction granted] Kakao share and CB issuance suspended
The court granted Lee's injunction, suspending the effectiveness of the share and CB issuance to Kakao. The decision held that, during an active control contest, a third-party private placement whose primary effect is to secure supportive votes does not satisfy the management-purpose test in Article 418(2). Kakao's pre-allocated 9.05% was invalidated overnight.
Tender offer subscription falls short — only 0.98% additional acquired
With the market price already trading above the ₩120,000 tender, SM shareholders held back from subscribing to HYBE's offer, choosing instead to wait for a higher counter-bid. HYBE acquired only 0.98% through the tender, leaving its total stake at 15.78% — far short of the 39.8% target.
[Competitive tender offer launched] ₩150,000 per share, up to 35%, ~₩1.25T cap
Kakao and its subsidiary Kakao Entertainment jointly launched a competitive tender offer at ₩150,000 per share, a 25% premium over HYBE's ₩120,000, for up to 35% of SM Entertainment, with a total cap of approximately ₩1.25 trillion. This was the first instance in Korean capital markets history of two simultaneous tender offers for the same company.
[Tender offer withdrawn — "a destructive bidding war would harm K-pop"]
Five days after Kakao's counter-bid, HYBE formally withdrew its tender offer. Its statement read: "We pursued the acquisition of SM Entertainment to strengthen the global competitiveness of K-pop, but we concluded that a destructive bidding war would have negative consequences for the industry as a whole. We will explore alternative forms of cooperation with Kakao." Markets read the move as a concession.
[Tender close — Kakao consolidates 39.87% of SM Entertainment]
The Kakao tender offer closed with shareholders tendering approximately 35% of SM. Combined with Kakao Entertainment's pre-existing roughly 4.9% stake, Kakao now controls approximately 39.87% of SM Entertainment and is confirmed as the largest shareholder. Lee Soo-man tendered his remaining roughly 35,000 shares into the Kakao bid at ₩150,000, locking in a 25% premium over the ₩120,000 he had received from HYBE.
Retains 14.8% residual stake — staged divestiture plan
HYBE chose not to tender into Kakao's bid and retained the 14.8% acquired from Lee. The position was divested in stages through 2024 and 2025, including a large sale to Tencent Music Entertainment in March 2025. Average realized prices exceeded the ₩120,000 cost basis, generating an estimated realized gain in the order of ₩10 billion.
[Pre-emptive defense] Approves ₩111.9B share + ₩105.2B CB issuance to Kakao (combined 9.05%)
Three days before HYBE's announcement, the SM board resolved to issue ₩111.9 billion of new shares (4.91%) and ₩105.2 billion of convertible bonds (4.14%) to Kakao via private placement. The stated rationale was a strategic partnership with Kakao's music streaming platform Melon, but the substantive effect was to place a 9.05% block in friendly hands ahead of a hostile bid.
Acquires Lee Soo-man's 14.8% at ₩120,000 per share + announces tender offer for additional 25%
HYBE purchased 14.8% of SM Entertainment (approximately 3,500,000 shares) from founder Lee Soo-man at ₩120,000 per share, for a total of ₩422.8 billion. It simultaneously announced a tender offer for an additional 25.0% at the same price, targeting a combined 39.8% stake. The price represented a 22% premium to the previous closing price of ₩98,500.
Files injunction in Seoul Eastern District Court against the Kakao share and CB issuance
Citing his residual roughly 3.7% stake, Lee Soo-man filed for an injunction blocking the SM board's February 7 share and CB issuance to Kakao. The petition relied on Article 418(2) of the Korean Commercial Code, arguing that third-party private placements during a control contest, undertaken to secure friendly votes, do not satisfy the statutory "management purpose" requirement and unlawfully impair existing shareholders' pre-emption rights.
[Injunction granted] Kakao share and CB issuance suspended
The court granted Lee's injunction, suspending the effectiveness of the share and CB issuance to Kakao. The decision held that, during an active control contest, a third-party private placement whose primary effect is to secure supportive votes does not satisfy the management-purpose test in Article 418(2). Kakao's pre-allocated 9.05% was invalidated overnight.
Tender offer subscription falls short — only 0.98% additional acquired
With the market price already trading above the ₩120,000 tender, SM shareholders held back from subscribing to HYBE's offer, choosing instead to wait for a higher counter-bid. HYBE acquired only 0.98% through the tender, leaving its total stake at 15.78% — far short of the 39.8% target.
[Competitive tender offer launched] ₩150,000 per share, up to 35%, ~₩1.25T cap
Kakao and its subsidiary Kakao Entertainment jointly launched a competitive tender offer at ₩150,000 per share, a 25% premium over HYBE's ₩120,000, for up to 35% of SM Entertainment, with a total cap of approximately ₩1.25 trillion. This was the first instance in Korean capital markets history of two simultaneous tender offers for the same company.
[Tender offer withdrawn — "a destructive bidding war would harm K-pop"]
Five days after Kakao's counter-bid, HYBE formally withdrew its tender offer. Its statement read: "We pursued the acquisition of SM Entertainment to strengthen the global competitiveness of K-pop, but we concluded that a destructive bidding war would have negative consequences for the industry as a whole. We will explore alternative forms of cooperation with Kakao." Markets read the move as a concession.
[Tender close — Kakao consolidates 39.87% of SM Entertainment]
The Kakao tender offer closed with shareholders tendering approximately 35% of SM. Combined with Kakao Entertainment's pre-existing roughly 4.9% stake, Kakao now controls approximately 39.87% of SM Entertainment and is confirmed as the largest shareholder. Lee Soo-man tendered his remaining roughly 35,000 shares into the Kakao bid at ₩150,000, locking in a 25% premium over the ₩120,000 he had received from HYBE.
Retains 14.8% residual stake — staged divestiture plan
HYBE chose not to tender into Kakao's bid and retained the 14.8% acquired from Lee. The position was divested in stages through 2024 and 2025, including a large sale to Tencent Music Entertainment in March 2025. Average realized prices exceeded the ₩120,000 cost basis, generating an estimated realized gain in the order of ₩10 billion.
🔩 Key Instruments
⚔️ Offense Playbook— HYBE + Lee Soo-man (initial acquirer)
An ousted founder sold 14.8% of his personal stake to an outside hostile party (HYBE) to retaliate against the board. The 3.5 million shares changed hands in a single block, directly triggering the entire contest.
Tender at ₩120,000 per share for an additional 25%, targeting a combined 39.8%. Withdrawn after Kakao's higher counter-bid. Only 0.98% acquired through the tender.
The ousted founder used his residual shareholder status to file an injunction against the board's third-party placement to Kakao. Seoul Eastern District Court granted it on Feb 22, invalidating Kakao's 9.05% block.
Five days after Kakao's counter-bid, HYBE withdrew its tender citing harm to the K-pop industry. Markets interpreted it as a concession on price.
🛡️ Defense Playbook— SM board + Kakao (white knight)
Three days before HYBE's announcement, the board resolved to place ₩111.9B in new shares and ₩105.2B in CBs with Kakao, totaling 9.05%. The first defensive white-knight equity issuance in Korean K-pop; subsequently blocked by court injunction.
Tender at ₩150,000 per share, a 25% premium over HYBE, for up to 35% with a ₩1.25T cap. Korea's first competitive public tender offer and the decisive weapon of the contest.
Turning Point
2023-03-07Kakao's competitive tender offer at ₩150,000 per share
The inflection point was Kakao's competitive tender. After the Feb 22 court ruling invalidated its 9.05% white-knight block, the defensive camp needed a new instrument. Rather than retry a private placement, it switched to a frontal market move — a public tender 25% above HYBE's price. The premium gave ordinary shareholders an unambiguous economic incentive to favor Kakao and induced HYBE's withdrawal within five days. It was the first time Korean capital markets witnessed a competitive public tender, and it produced the textbook lesson: a higher bid beats a clever defensive structure.
Final Verdict
Defender WinsKakao + SM board — 39.87% of SM consolidated, largest shareholder
Margin: Kakao 39.87% vs HYBE 15.78% at tender close
The defensive camp (SM board + Kakao) lost its first weapon (the white-knight share and CB issuance) in court, but won decisively with its second weapon (the competitive tender). HYBE's withdrawal was not a pure surrender; it preserved capital for its own IP roster (BTS, NewJeans, SEVENTEEN), avoided a potentially blocking Fair Trade Commission review, and let the company exit the residual 14.8% stake in stages at prices above cost. Kakao became the largest camp in K-pop; HYBE retained the industry's revenue lead.
Deal Structure
Pre-contest, Lee Soo-man held 18.46% as sole largest shareholder, with Kakao Entertainment carrying a roughly 4.9% legacy stake and the remainder in free float. The Feb 7 board resolution placed a 9.05% block with Kakao (invalidated by court on Feb 22), the Feb 10 block sale moved 14.8% from Lee to HYBE, and the Mar 7–26 Kakao competitive tender brought another roughly 35% to Kakao. Post-contest, the cap table reads Kakao 39.87% / HYBE 15.78% / free float approximately 44%. HYBE divested its residual in stages through 2025.
Pre-Deal
Lee Soo-man
~18.46%
SM Entertainment
K-pop founder-run agency
Kakao Entertainment
~4.9%
Free float
~76.6%
Post-Deal
Kakao + Kakao Entertainment
39.87% (largest)
SM Entertainment
Kakao-controlled
HYBE
15.78% (residual)
Free float
~44%
Key Terms
Advisors
Korea's four major law firms were deployed across all sides of this first-of-its-kind competitive tender. Financial advisory was anchored by Korean brokerage capital markets teams supporting each camp's tender mechanics.
HYBE + Lee Soo-man (initial acquirer side) Advisors
Kim & Chang
Legal advisor to HYBETender offer filing, Capital Markets Act compliance, merger notification preparation
Samsung Securities
Financial advisor to HYBE / tender offer agentPricing, tender filing and subscription administration
Hwawoo (Yoon & Yang LLC)
Legal advisor to Lee Soo-manFiled and secured the Feb 22 injunction against the Kakao share and CB issuance
SM board + Kakao (defensive side, white knight) Advisors
Lee & Ko (Gwangjang)
Legal advisor to SM boardAdvised on Feb 7 Kakao share and CB issuance and follow-on governance matters
Yulchon LLC
Legal advisor to KakaoStructured the competitive tender offer, merger notification, post-acquisition integration
Korea Investment & Securities
Financial advisor to Kakao / tender offer agentPricing at ₩150,000, tender filing and subscription administration
Note: Advisor information is based on public filings and press reporting. Actual mandates may differ.
Financials
K-IFRS consolidated basis. Figures in ₩100 million. FY2020 operating profit collapsed on the loss of concert revenue during COVID-19. FY2022 was a record year on the back of recovering albums, merchandise and concerts. Like Planning producing fees (estimated ₩10–20 billion per year) were booked as operating expenses, depressing reported operating profit until the contract was terminated in early 2023.
| Item | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 |
|---|---|---|---|---|---|
| Revenue | KRW 6,122(₩100M) | KRW 6,578(₩100M) | KRW 5,798(₩100M) | KRW 7,015(₩100M) | KRW 8,484(₩100M) |
| COGS | KRW 5,230(₩100M) | KRW 5,530(₩100M) | KRW 5,070(₩100M) | KRW 5,870(₩100M) | KRW 7,000(₩100M) |
| Gross Profit | KRW 892(₩100M) | KRW 1,048(₩100M) | KRW 728(₩100M) | KRW 1,145(₩100M) | KRW 1,484(₩100M) |
| SG&A | KRW 510(₩100M) | KRW 644(₩100M) | KRW 660(₩100M) | KRW 470(₩100M) | KRW 549(₩100M) |
| Operating Income | KRW 382(₩100M) | KRW 404(₩100M) | KRW 68(₩100M) | KRW 675(₩100M) | KRW 935(₩100M) |
| EBITDA | KRW 720(₩100M) | KRW 812(₩100M) | KRW 520(₩100M) | KRW 1,080(₩100M) | KRW 1,410(₩100M) |
| EBITDA Margin | 11.8% | 12.3% | 9.0% | 15.4% | 16.6% |
Valuation
The valuation trajectory unfolded across four discrete price points: ₩98,500 (pre-contest) → ₩120,000 (HYBE) → ₩150,000 (Kakao) → ₩152,000 (market peak). Kakao's final acquisition price of ₩150,000 implies approximately 4.3x EV/Revenue and approximately 38x EV/Operating Profit on FY2022 figures (revenue ₩848.4B, operating profit ₩93.5B) — a 25%-plus expansion versus pre-contest trading multiples. The premium captures both the IP value of SM's 60-plus-artist roster (especially NCT's multi-unit franchise and aespa's virtual IP) and the cross-platform synergies with Kakao's Melon streaming service.
| Metric | Value | Notes |
|---|---|---|
| Pre-contest close (Feb 9, 2023) | ₩98,500 | Day before HYBE announcement |
| HYBE block deal / tender price | ₩120,000 | +22% premium |
| Post-injunction close (Feb 22) | ~₩125,000 | Broke above HYBE tender price |
| Kakao competitive tender price | ₩150,000 | +25% above HYBE |
| Intraday peak (Mar 8, 2023) | ₩152,000 | Day after Kakao announcement |
| Post-tender stabilization (Apr 2023) | ~₩121,000 | Premium partially decayed |
| May 2026 share price | ~₩88,000 | Three years into Kakao era |
| HYBE total outlay (Lee block deal) | ~₩422.8B | 3.5M shares × ₩120,000 |
| Kakao total outlay (tender) | ~₩1.25 trillion | Up to 35% × ₩150,000 |
| Lee Soo-man realized proceeds | ~₩475.6B | 14.8% at ₩120K + residual at ₩150K |
| EV/Revenue at Kakao tender | ~4.3x | On FY2022 revenue of ₩848.4B |
| EV/Operating Profit at Kakao tender | ~38x | On FY2022 op profit of ₩93.5B |
Note: Share prices and capital outlays are based on regulatory filings and press reporting. Multiples are calculated on equity value as a simplification, without debt and cash adjustments.
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Deal Rationale
Why HYBE pursued SM, and why it withdrew
- [Global expansion logic] HYBE's BTS franchise generated roughly 60% of revenue. With BTS members' military service running 2022–2025, the agency faced a near-term revenue cliff. Absorbing SM's NCT, aespa, EXO and TVXQ catalogs would have diversified the IP base overnight.
- [Japan and China distribution] SM's three-decade distribution network in Japan and China, built since the BoA and TVXQ era, was the single capability HYBE most lacked. An SM acquisition was the cleanest path to a unified K-pop global champion.
- [Ousted founder timing] Lee Soo-man's forced exit from management in January and February 2023 gave HYBE a uniquely well-timed seller: the founder's stake could be framed as a friendly sale rather than a hostile raid, even though the SM board itself opposed the deal.
- [Withdrawal economics] Matching Kakao at ₩180,000-plus would have added at least ₩500B in capital commitment. Withdrawing preserved that capital for BTS, NewJeans and SEVENTEEN — and the public framing of "protecting the K-pop industry from a destructive bidding war" provided defensible cover for what was substantively a financial concession.
- [Fair Trade Commission risk avoided] A successful HYBE-SM combination would have placed more than 50% of K-pop revenue under a single agency, almost certainly triggering a one-to-two-year Korea Fair Trade Commission merger review. Withdrawal removed that variable entirely.
How Kakao moved from white knight to largest shareholder
- [Vertical integration of music platform] Kakao's Melon streaming service (700M monthly active users), combined with Kakao Entertainment, Kakao M, Starship and Antenna, gained vertical integration once SM's 60-plus artists joined — from streaming through management through concert promotion.
- [Largest camp in K-pop] SM 39.87% plus Kakao Entertainment's existing label portfolio (IVE-related IPs, IU, etc.) plus Starship, Antenna, IST and EDAM positions Kakao as the largest single camp in K-pop, balanced against HYBE's BTS-NewJeans-SEVENTEEN block.
- [Workaround after court defeat] After the Feb 22 ruling invalidated the 9.05% white-knight block, Kakao pivoted from private placement to a public tender — a frontal market move that beat HYBE's price by 25% and forced withdrawal within five days.
- [A ₩1.25 trillion PIPE-style decision] Deploying roughly ₩1.25 trillion at the trough of Kakao's broader 2022–2023 challenges (the October 2022 data center fire, platform regulation pressure) signaled the strategic priority Kakao placed on locking down the K-pop camp.
- [Pre-coordinated white knight partnership] The Feb 7 board resolution implies Kakao and the SM co-CEOs had aligned well before HYBE's announcement. The post-injunction switch to a competitive tender was executed within the same defensive coalition, with no daylight between the SM board and the white knight throughout the contest.
Post-Deal Assessment (May 2026 as of)
Three years after the contest closed, the outcomes are clear. Kakao operates SM as a 39.87%-controlled subsidiary, integrating Melon streaming, Kakao Entertainment management and SM's IP roster; SM FY2025 revenue is approximately ₩1.0 trillion with operating profit of approximately ₩120 billion, a gradual recovery toward pre-contest levels. HYBE retained K-pop industry revenue leadership through BTS's full-member return (2025), NewJeans, SEVENTEEN and LE SSERAFIM, and disposed of the residual SM stake in stages including a major sale to Tencent Music Entertainment in March 2025. Lee Soo-man, sitting on roughly ₩500 billion in net proceeds from the two staged sales, has pursued an independent global music venture. The largest institutional residue is the Korean Capital Markets Act discussion of a mandatory tender offer regime and clearer guidelines for defensive share and CB issuance during a control contest.
Positives
- [Korea's first competitive tender offer precedent] Two simultaneous tender offers for the same target, a category the Korean market and regulators learned in real time and codified through subsequent guidance.
- [First judicial block of defensive equity issuance] The Seoul Eastern District Court's Feb 22, 2023 injunction is now the standard reference precedent for blocking defensive third-party placements during a control contest.
- [Two-camp K-pop industry] Kakao (SM, Kakao Entertainment, Starship, Antenna) versus HYBE (BTS, SEVENTEEN, NewJeans) emerged as the structural successor to the four-agency era. JYP and YG continue to operate independently.
- [Capital Markets Act reform impulse] The contest directly triggered the 2024 mandatory-tender-offer legislative discussion that advanced to subordinate-legislation preview in early 2026.
- [Improved SM governance] Termination of the Like Planning producing-fee structure and transition to "SM 3.0" governance under co-CEOs Lee Sung-su and Tak Young-jun closed a long-standing related-party concern.
Risks & Concerns
- [Kakao integration challenges] Combining SM's heritage culture with Kakao Entertainment has surfaced contract renegotiation tensions with some artists in 2025 and slowed the realization of streaming-IP synergies.
- [Industry concentration] The two-camp structure squeezes mid-tier agencies' bargaining power around new artist development and royalty terms.
- [Latent Korea Fair Trade Commission exposure] Kakao's combined K-pop footprint now approaches regulatory thresholds; a 2025–2026 review of market power in the entertainment industry remains a live risk.
- [HYBE's post-BTS variable] After the SM acquisition failed, HYBE refocused on internal IP. BTS's 2025 reunion concentrated revenue back onto a single franchise, raising the importance of the next generation of debuts.
- [Lee Soo-man's independent venture] The founder's roughly ₩500B in proceeds funded a separate global music platform (the 2024 A2O project and related initiatives), positioning him as a potential long-term competitor.
This announcement appears as a matter of record only
HYBE + Lee Soo-man (initial acquirer) → Kakao (ultimate winner, white knight)
Acquirer
SM Entertainment Co., Ltd. (KOSDAQ 041510)
Target
Korea's First Competitive Public Tender Offer — HYBE Withdraws, Kakao Wins 39.87% of SM
Transaction Size
HYBE ₩422.8B block + Kakao ~₩1.25T tender = combined ~₩1.67T
Approx. USD 1.3B combined (HYBE block ~$334M + Kakao tender ~$1.0B)
EV / EBITDA
~38x EV/Op Income on FY2022
Multiple
Closed
Mar 26, 2023 (Kakao tender close)
Deal Date
Editor's Note
The HYBE-SM-Kakao contest delivered three Korean firsts in a six-week window: a competitive public tender offer, a court block on defensive white-knight equity issuance, and an industry-framed voluntary withdrawal. The episode is now the standard reference case in Korean M&A casebooks and the direct trigger for the country's evolving mandatory tender offer regime. Its enduring lesson is that price still wins control contests — Kakao's 25% premium over HYBE was the decisive instrument — but the procedural rules established here (around courts, white-knight defenses, and competitive bidding) now condition how that price can be deployed in the first place. — Reviewed May 2026.
Key Concepts in This Deal
A structure in which two or more bidders run simultaneous public tender offers for the same shares of the same target. Price competition benefits ordinary shareholders but raises transaction costs, information asymmetries and market volatility. HYBE × Kakao in 2023 was Korea's first such case.
A third-party investor brought in to align with incumbent management against a hostile bidder. In this contest, Kakao played that role for the SM board — pivoting from defensive private placement (blocked by court) to a higher competitive tender (decisive).
Under Korean law, new shares default to existing shareholders via pre-emption rights, and third-party private placements require a clearly established "management purpose." Defensive placements during a control contest, designed to secure friendly votes, fail that test. The Seoul Eastern District Court's Feb 22, 2023 ruling is Korea's first clear judicial application of this standard to a major control contest.
Hostile acquisitions proceed without target board consent; friendly acquisitions are negotiated with the board. HYBE's approach was a hybrid — friendly to the ousted founder, hostile to the standing board — while Kakao was a fully friendly white knight.
The integrated intellectual property bundle of an entertainment agency: artist management contracts, masters and publishing, music videos, merchandise, concert rights, fandom platforms, character licensing. The contest priced SM's IP at roughly 4.3x EV/Revenue and 38x EV/Op Income on FY2022, reflecting the franchise value of NCT, aespa, EXO and the long-tail catalog.
Lee Soo-man's wholly owned private entity that collected a fixed share of SM's album revenue as a "producing advisory fee." Sustained criticism from Align Partners and other activists over 2021–2023 led the SM board to terminate the contract in early 2023, directly triggering the founder's exit and the broader contest.
A contractual right requiring co-investors to sell their stakes alongside another co-investor's decision to exit. Not directly invoked in this contest, but the framework informed HYBE's staged divestiture of its residual 14.8% across 2024 and 2025.
A regulatory regime requiring any acquirer crossing a defined ownership threshold (e.g. 25%) to extend a tender offer to a defined minimum proportion of other shareholders (e.g. 50% plus one share). The HYBE-SM-Kakao contest was the direct trigger for the 2024 Korean Capital Markets Act amendment proposal, which advanced to subordinate-legislation preview in early 2026.
Frequently Asked Questions
Why was this Korea's first "competitive public tender offer"?
Two simultaneous public tender offers for the same shares of the same target had never occurred in Korean capital markets before February to March 2023. HYBE's ₩120,000 tender for an additional 25% of SM was directly challenged by Kakao's ₩150,000 tender for up to 35%, creating a head-to-head pricing contest in which ordinary shareholders chose between two bids. The episode forced regulators and the market to absorb a new category of M&A in real time and became the direct trigger for subsequent Capital Markets Act reform.
Why did the Seoul Eastern District Court invalidate the Kakao share and CB issuance?
Article 418(2) of the Korean Commercial Code reserves new share issuance for existing shareholders' pre-emption rights and permits third-party private placements only when a clear "management purpose" is established. The court found that the SM board's Feb 7 resolution, although framed as a strategic partnership with Kakao's Melon streaming platform, was substantively a defensive maneuver three days before a known hostile bid. Issuing 9.05% of SM into friendly hands during an active control contest, with the primary effect of securing supportive votes, did not satisfy the management-purpose test. The ruling has since become Korea's standard precedent for blocking defensive white-knight equity issuance.
Why did Lee Soo-man sell SM to HYBE?
The proximate cause was retaliation. The SM board, drawing on two years of activist criticism from Align Partners over the Like Planning royalty structure, ousted Lee from management and terminated the Like Planning contract in January and February 2023. As the founder and 18.46% largest shareholder, Lee responded by selling 14.8% of his stake to HYBE — the most credible hostile acquirer in K-pop — to attack the standing board. He then tendered his residual stake into Kakao's higher-priced bid, capturing an additional 25% premium. The ouster, intended to remove him, instead generated roughly ₩500 billion in net proceeds.
Why did HYBE give up rather than match Kakao's price?
The stated rationale was preserving the K-pop industry from a destructive bidding war, but the underlying calculus was threefold. First, matching Kakao at ₩180,000-plus would have required at least ₩500B of additional capital commitment. Second, a successful HYBE-SM combination would likely have triggered a one-to-two-year Korea Fair Trade Commission merger review on industry-concentration grounds. Third, with BTS members on military service through 2025, HYBE needed capital to develop NewJeans, SEVENTEEN and other internal IP. Withdrawal preserved capital, avoided the FTC variable, and let HYBE divest its 14.8% in stages at prices above the ₩120,000 cost basis — netting an estimated ₩10B in realized gains.
How has Kakao operated SM since the acquisition?
Kakao consolidated SM as a 39.87%-controlled subsidiary and has pursued vertical integration with Melon (700M MAU) and Kakao Entertainment's broader label portfolio. NCT, aespa and EXO content has been preferentially distributed through Kakao platforms (Melon, KakaoTV, Kakao Webtoon). Integration has been uneven, however — some SM artist contract renegotiations stalled in 2025, and Kakao's broader corporate challenges (the October 2022 data center fire, platform regulation pressure) absorbed management attention. SM FY2025 revenue of approximately ₩1.0 trillion and operating profit of approximately ₩120 billion represent gradual recovery toward pre-contest performance.
What institutional changes did this contest leave behind in Korean capital markets?
Three major changes. First, the [mandatory tender offer reform]: a 2024 amendment proposal to the Capital Markets Act that would require acquirers crossing a 25% threshold to extend a tender for at least 50% plus one share, advanced to subordinate-legislation preview in January through April 2026. If enacted, it will fundamentally rewrite the rules of future competitive tender offers in Korea. Second, the Seoul Eastern District Court's Feb 22, 2023 injunction effectively closed off defensive white-knight equity issuance during active control contests, becoming the standard reference precedent. Third, the Financial Supervisory Service issued clarifying guidance on procedural gaps exposed by two simultaneous tender offers, including pricing-adjustment mechanics, subscription-period overlaps and disclosure timing. A six-week contest opened a new chapter in Korean M&A regulation.
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Sources & Notes
- [1]Korea Financial Supervisory Service DART — HYBE acquisition of Lee Soo-man's 14.8% stake and tender offer filing (Feb 10, 2023)
- [2]DART — SM Entertainment board resolution for third-party share and CB issuance to Kakao (Feb 7, 2023)
- [3]Seoul Eastern District Court — Injunction granted suspending Kakao share and CB issuance (Feb 22, 2023)
- [4]DART — Kakao and Kakao Entertainment tender offer filing for SM Entertainment at ₩150,000 per share (Mar 7, 2023)
- [5]HYBE tender offer withdrawal press release (Mar 12, 2023)
- [6]The Korea Economic Daily (Hankyung) — Timeline of HYBE-Kakao control battle (Feb–Mar 2023)
- [7]ChosunBiz — Analysis of HYBE's withdrawal under the "K-pop industry harm" framing (Mar 13, 2023)
- [8]The Bell — Significance of Korea's first competitive public tender offer (March 2023)
- [9]Maeil Business News — Kakao confirmed as SM's largest shareholder with 39.87% (Mar 27, 2023)
- [10]Variety — Kakao Wins SM Entertainment Bid, HYBE Withdraws (March 2023)
- [11]Bloomberg — Korea's First Competitive Tender Offer Reshapes K-pop (March 2023)
- [12]Korea Herald — SM founder Lee Soo-man joins hands with Hybe to counter SM's Kakao partnership (February 2023)
- [13]Music Business Worldwide — HYBE Sells Stake in SM Entertainment to Tencent Music (March 2025)
- [14]SM Entertainment IR — FY2022 annual results (revenue ₩848.4B, operating profit ₩93.5B)