Exploring the Rumors Surrounding the Possible Sale of SM Entertainment by Kakao
Shift in Dynamics between Kakao and SM Entertainment
In recent weeks, speculations have arisen about the potential sale of SM Entertainment by Kakao, following a fierce battle with HYBE for the acquisition. According to an exclusive MTN report, Kakao is considering selling and among the potential buyers is Korean video game developer NCsoft.
What Sparks the Possible Sale?
The decision to consider the sale comes after Kakao’s management expressed concerns about SM Entertainment hiring personnel linked to legislator Lee Cheol Gyu, a vital member of the Yoon Seok Yeol party, without prior consultation.
Kakao is currently conducting a thorough audit of SM Entertainment’s management to determine if personal relationships influenced the acquisition. Depending on the audit results, there is speculation about a possible change in SM Entertainment’s leadership.
Cooling Relations
What was once a friendly relationship between the two companies now appears to have cooled. Attention is focused on understanding the reasons behind this shift and the potential future actions of both companies.
Sources Confirm Deliberations
According to sources familiar with the situation, “Kakao has considered selling SM Entertainment and is known to have explored the possibility of NCsoft acquiring it at the end of last year.” The seriousness of Kakao’s intentions and NCsoft’s response are not yet fully known.
Another source in the venture capital industry also confirmed, “Under-the-table discussions between the two companies have actually taken place.”
Background of Controversies
Speculations about Kakao selling SM Entertainment have been circulating since the end of 2023 due to controversies arising during the acquisition process, leading to the arrest of Bae Jae Hyun, Kakao’s investment head, and internal turmoil within the group.
In October of last year, Financial Supervisory Service Governor Yim Jong Hyun highlighted the importance of reversing profits obtained through illegal activities, indirectly suggesting that Kakao’s acquisition of SM Entertainment, allegedly involving market manipulation, would be inappropriate.
NCsoft in the Equation
NCsoft, identified as a priority target contacted by Kakao, is struggling due to the weakening competitiveness of its core gaming business. Although it pursued initiatives such as building an entertainment platform, these efforts were ultimately abandoned. The acquisition of SM Entertainment by NCsoft is regarded as complex and not a straightforward process.
NCsoft also stated, “We have not considered acquiring SM Entertainment.”
Ongoing Audit and Responses from Involved Companies
Kakao initiated a forensic investigation earlier this month through the law firm Kim & Jang, focusing on SM Entertainment employees. Allegations include the high-priced acquisition of companies owned by SM Entertainment directors A and senior executive B, as well as companies affiliated with The HUB, operated by a friend of Chief Administrative Officer Lee Sang Soo. The audit is said to include details related to StudioClon, which SM Entertainment acquired in April of last year.
Regarding these issues, Kakao commented, “The audit results have not been released yet.”
SM Entertainment recently hired Yoon Joon Ho, a former aide to lawmaker Lee Cheol Gyu, without prior information sharing with Kakao, seen as a response to various controversies and external pressures surrounding SM Entertainment.
Challenges for Acquisition and Uncertain Future
The acquisition of SM Entertainment by Kakao was initially pursued to maximize synergy in their entertainment business collaboration. However, controversies have caused internal turmoil, casting the acquisition in a negative light.
During the process of comprehensive business restructuring, management innovation, and efforts to enhance transparency at the group level, SM Entertainment might emerge as a hindrance. Consequently, there is speculation that post-acquisition, Kakao will exert greater control over the management and executives of SM Entertainment.
The evolving nature of the increasingly strained relationship between Kakao and SM Entertainment is being closely monitored with keen interest. The resolution of legal disputes and the ability to fully leverage synergies with SM Entertainment are crucial for the ongoing success of this collaboration.
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