SM Entertainment (SM Ent) Denies Kakao’s Acquisition Of SM Entertainment

SM Entertainment (SM Ent) denies Kakao’s acquisition of SM Ent, saying it is not true and that they are pursuing joint growth.

SM Entertainment clarifies its position on investment and acquisition rumors.
On February 5, SM Entertainment released a press release titled “A letter to our shareholders and stakeholders regarding recent media reports.” In the press release, the company stated that “Since November 2023, there have been a number of media reports about our company, and baseless speculation and rumors have been spreading and reproducing, which has seriously damaged our corporate image. In response, we would like to briefly clarify our position on the following matters.“

The following is SM Entertainment’s official statement.

A message to shareholders and stakeholders in relation to recent media reports.

Since around November 2023, unfounded speculations and rumors have been expanded and reproduced regarding various media reports related to our company, seriously damaging our corporate image. . Accordingly, we briefly state our position on several matters below.

1. Investment by Kreation Music Rights (“KMR”)

KMR is a company launched in 2023 to promote the publishing business and multi-label strategy, which is one of the investment focuses stated in the SM 3.0 strategy. In the past, SM had relationships with writers around the world and produced music, but until the SM 3.0 system began, former general producer Lee Soo-man’s 100% private company called CTGA (Culture Technology Group Asia) had been signing publishing contracts for writers. It was a situation. Accordingly, SM established KMR to grow into a publishing company that can supply competitive music to SM and the entire K-Pop ecosystem, based on the worldwide network of writers accumulated at SM over the past 25 years. In addition, KMR will pursue SM’s multi-label strategy by pursuing synergy with good music supplied through publishing based on its ability to nurture competitive artists and produce music/content.

In relation to this, KMR has been exploring various investment/acquisition cases for leading domestic and foreign publishing companies and labels since the process of preparing for establishment, including receiving an acquisition deal worth 50 billion won from a company with three artists. We reviewed proposals from several acquisition candidates. However, in terms of KMR’s first investment, it was necessary to consider the appropriateness of the deal size and the creation of visible synergies within a short period of time, and in this respect, it ended up acquiring The Hub and TenX.

The Hub is a music publishing company, and its acquisition price was calculated by applying the Market Approach evaluation method applied to evaluating publishing companies (NPS: Net Publisher’s Share, calculated by multiplying net sales minus artist distribution by Multiple). This was an appropriate level in light of commonly traded cases and the growth trends of the past three years.

TENX was an investment made as part of the multi-label strategy of the SM 3.0 strategy, and was engaged in businesses such as artist and content production. TENX’s artist Kim Woo-jin is a former SM trainee and member of Stray Kids. KMR judged that artist Kim Woo-jin has sufficient growth potential in the future and acquired TENX at an appropriate level through the DCF (Discounted Cash Flow) evaluation method. (Business transfer) has been decided. Through the acquisition of TenX, KMR not only has a label that fosters various artists, including artist Kim Woo-jin, but also plans to link its production capabilities with the publishing business to pursue various domestic and international producing service projects.

2. Investigation by Kakao’s Audit Committee

Kakao’s Audit Committee has requested that we submit a large amount of data in relation to the preparation of Kakao’s consolidated financial statements starting around early December 2023. Among them was a request for PC forensics on key executives. There were many questions and regrets regarding the scope and method of these requests, but we cooperated as much as possible to help ensure accurate understanding.

3. Kakao’s sale of SM

The rumor about Kakao’s sale of SM, which was reported in many media outlets, was announced as untrue through Kakao’s announcement dated January 29, 2024. Additionally, there have been several media reports regarding the rumor of a change in management at our company, but according to our communication with Kakao, Kakao is not considering a change in management. Even at this moment, our company is continuing close business cooperation with Kakao and Kakao Entertainment to pursue joint growth and create mutual synergies.