Kakao responds to HYBE criticism of SM Entertainment partnership

HYBE says it will “take all necessary legal measures” against the deal, which reportedly gives Kakao exclusive rights to distribute SM’s music releases and local concert tickets

Following its successful acquisition of SM Entertainment, HYBE has criticised a recent partnership the K-pop agency has forged with South Korean tech giant Kakao.

Earlier this month, Kakao shared that it had acquired a 9.05 per cent stake in SM, which would have made it the second-largest shareholder of the company after founder Lee Soo-man. HYBE later announced that it had struck a deal to acquire a 14.8 per cent stake in SM from Lee, thus becoming its biggest shareholder. It also offered to purchase another 25 per cent stake in the agency from minority investors.

HYBE announced last Wednesday (February 22) in an open letter that it had completed the acquisition, which has been opposed by SM leadership and staff, and officially become the biggest shareholder in SM. The day before, HYBE CEO Park Ji-won said the company was open to working with Kakao as it was “open to business proposals that benefit SM Entertainment”, though it had yet to hear details.


On February 22, SM unveiled the details of the deal with Kakao it had originally struck earlier that month. Per The Korea Herald, the new partnership gives Kakao exclusive rights to distribute SM’s music releases and local concert tickets, as well as the pre-emptive right to purchase new shares in SM Entertainment.

On February 24, HYBE commented on SM and Kakao’s partnership, saying it would take “all necessary legal measures” against the deal. “After learning of what is in the business contract, we were both surprised and concerned,” said HYBE, per Yonhap News Agency.

“Compared with the important business rights that SM is handing over, what it gets in return is unreasonably small,” added HYBE. “We believe this contract damages the value of SM shareholders, restricts the rights of SM artists and limits the future of SM employees.”

Kakao Entertainment CEO Kim Sung-soo responded to HYBE’s criticism earlier today (February 27), saying that the deal “comprehensively covers the future vision and direction pursued by Kakao, Kakao Entertainment and SM Entertainment,” according to The Korea Times.

He also defended Kakao Entertainment’s pre-emptive rights to purchase SM shares, explaining that the clause had been added as part of “anti-dilution” provisions for minority shareholders. “We express regret over HYBE for misinterpreting some contract terms for its own advantage and causing unnecessary confusion,” added Kim.

HYBE has since responded to Kakao’s claims, saying that its position on the deal had not changed, but it “can fully consider Kakao Entertainment’s business proposals for SM if they are helpful for the company’s business, on the precondition that Kakao is not interested in participating in the company’s management.”


Kakao’s acquisition of SM stakes earlier this month was opposed by SM founder Lee Soo-man, who alleged that it was an “act of illegality” and filed an injunction to stop the transaction. According to the Korean JoongAng Daily, the first hearing was held on Wednesday and more information was requested from both parties. No date has been set for the ruling, the publication reports.

The Korean JoongAng Daily also reports that Kakao has established a corporation in the United States that will be jointly owned with SM Entertainment and manage artists in the Americas.

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