SM Entertainment stock price surges after Lee Soo Man’s Like Planning contract termination

SM Entertainment reported an increased stock price after announcing that it will cut ties with its founder Lee Soo Man's Like Planning company. Its stock surged more than 18% late last week after the reveal of the contract termination.

The announcement of SM Entertainment's break up with Lee Soo Man's wholly-owned firm came last week, but the discontinuation of the contract will actually take effect by the end of this year. As per The Korea Times, the entertainment firm's stock price reached KRW76,500 on Friday, and this showed an increase of KRW12,000 or 18.6% compared to the day before.

Prior to the announcement, the agency that manages some of the biggest Kpop stars, such as Super Junior, TVXQ, EXO, Shinee, SNSD, and Red Velvet, said it was informed that Like Planning has intentions of ending its contract with SME early. In its recent regulatory filing, the company said that it is currently reviewing the proposal, and if the board approves, it will disclose the result immediately.

"We have been conducting various reviews and discussions on the production contract of Like Planning with executive producer Lee Soo Man, and the executive producer told us that he wanted to terminate the production contract early at the end of this year," SM Entertainment stated in last week's filing at the Financial Supervisory Service.

SME added, "Our agency plans to discuss with major shareholders the impact of the early termination of this production contract with the executive producer on his business and announce the result later."

With this statement, many investors reportedly interpreted it as an indication that Lee Soo Man will also give up his role as a chief producer at SM Entertainment soon. They think this is the case, especially when the company further said, "with the 25-year-old production system Lee established running well, he is confident that good junior producers will manage without much difficulty."

SM Entertainment went on to explain that Lee will humbly accept the opinion of minority shareholders if they want him to step down as chief producer. In any case, the contract termination with Like Planning has been brought up after it was pointed out that SME has been paying billions of won in royalties to Lee's company for its production services.

Korea Joongang Daily reported that Like Planning has been taking six percent of SME's total revenue, and it has had a contract with the company for 20 years. It was reportedly paid KRW11.4 billion just for the first half of this year.

Originally, Like Planning's contract with SM was set to expire in December 2023, and the early termination resulted from Align Partners Capital Management's letter saying that SME's ties with Lee Soo Man's Like Planning is "damaging shareholder value." Thus, it is demanding the end of the contract early. Align Partners is one of SM's stakeholders.