Hybe issues warning against SM Entertainment over Kakao deal

Hybe reportedly issued a warning against SM Entertainment's deal with Kakao. The entertainment firm that also manages superstar boy group, BTS, blasted the latter and called its agreement with the internet company "unfair."

Hybe, which has become the largest stakeholder of SM Entertainment, firmly said on Friday, Feb. 24, that it would take legal action against the recent deal that SME signed with Kakao Entertainment. This is because their agreement is being seen as a form of resistance to Hybe's takeover bid.

According to Yonhap News Agency, SM Entertainment signed a contract with Kakao wherein the latter was granted an exclusive right to distribute SME's albums and music. It was also given a preemptive right to acquire new shares in Lee Soo Man-founded entertainment firm. The deal was announced last week while Hybe is in the process of taking over SM after becoming its largest stakeholder.

BTS' company said that the deal between SME and Kakao means the latter may keep buying shares by taking advantage of the preemptive share purchase right. Hybe explained this system would hurt ordinary shareholders as it diminishes the value of assets held by other stakeholders.

"After learning what is in the business contract, we were both surprised and concerned," Hybe commented. "A review is underway on legal problems contained in this contract. Based on the result, we will take all necessary civil and criminal legal measures."

The company further stated, "Compared with the important business rights that SM is handing over, what it gets in return is unreasonably small. We believe this contract damages the value of SM shareholders, restricts the rights of SM artists and limits the future of SM employees. The current SM management should suspend all decision-making related to details of this contract."

Meanwhile, Korea Joongang Daily reported that SM Entertainment contradicted Hybe's claims and explained it has no plans to draw investment through allotment by a third party, so Kakao cannot make a request for SM to issue new shares and utilize them to increase its stake further.

The company also pointed out that SM Entertainment and Kakao are in an equal partnership. It also denies Hybe's allegations that it turned over the music distribution rights of its artists for an unspecified period.

"It is nonsense to claim that we've turned over the rights indefinitely when we haven't even smoothed out the details yet," the company said. "Specifics will be discussed later through a separate contract."