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[Alpha Biz=(Chicago) Reporter Kim Jisun] Kakao is expected to become the second-largest shareholder by acquiring new shares and convertible bonds issued by SM Entertainment. General producer Lee Soo-man, the largest shareholder, announced that he would immediately take legal action, calling it "a clear illegal act."
SM Entertainment's management and founder, who secured activist funds and Kakao as allies, will face a head-on conflict over management rights.
Kakao held a board meeting on the 7th and announced that it will acquire 4.91% of new shares (1.23 million shares) issued by SM Entertainment in the form of a third-party allocation paid-in capital increase for 111.9 billion won (91,000 won per share) on the 6th of next month. Kakao also decided to invest 105.2 billion won to buy SM Entertainment's convertible bonds. Based on the conversion of ordinary shares, it is 4.14% (1.14 million shares). Once the conversion is made, a total of 9.05% stake will be secured. Once the investment is completed, Kakao will become the second-largest shareholder after its founder, General Manager Lee (18.46%).
Kakao cited 'business cooperation' as the reason for the investment. It also signed a business agreement between Kakao and its subsidiaries Kakao Entertainment and SM Entertainment. However, this general manager interpreted it as a 'management dispute'. With SM Entertainment's management joining hands with activist fund Alliance Partners and turning their back on Lee, it is argued that issuing new shares to Kakao is aimed at securing a friendly stake. Kakao negotiated to acquire a stake in Lee by the end of last year and become the largest shareholder of SM Entertainment at once, but it was delayed due to differences in prices and conditions.
Director Lee announced that he will hold civil and criminal legal responsibility to the directors who approved the "application for an injunction to ban the issuance of new shares" and illegal resolutions against Kakao through the law firm Hwawoo.
AlphaBIZ 김지선(stockmk2020@alphabiz.co.kr)
