SM Leisure has launched a video denouncing HYBE‘s takeover of the corporate and listed out explanation why they’re in opposition to the transfer.
Within the video, Cheol Hyuk Jang, the CFO (Chief Monetary Officer) for SM Leisure, shared a mess of factors about why he and the corporate is in opposition to the takeover.
First, he commented about how Lee Soo Man bought his shares within the firm proper after the SM 3.0 system was launched, which he labeled as a “hostile takeover try”.
On February 3, we SM, took step one towards our new leap ahead for our followers, artists, shareholders and staff, by asserting “SM 3.0
targeted on the change to the Multi ‘Manufacturing Middle, Label’ system.” As quickly as SM’s new imaginative and prescient “SM 3.0” was introduced, the most important shareholder bought his stake, and a hostile takeover try by a competitor began.
That is an try that ignores not solely the fierce deliberation and efforts of the 600 SM staff who’ve dreamed of changing into the No.1 leisure firm on this planet, but in addition the values and satisfaction of SM that it has pursued along with the followers and artists.
Right this moment, we wish to inform you intimately about SM Leisure’s place on the present scenario. On February 9, HYBE turned SM’s largest shareholder by buying 14.8% of SM’s stake held by government producer Lee Soo Man, the corporate’s former largest shareholder. HYBE has additionally introduced that it will finally purchase ~40% stake by way of a young provide at the moment underway. That is clearly a “hostile takeover try” that has not been consulted with the present administration and board.
— Cheol Hyuk Jang
He then shared how he believes that is HYBE’s try to take over administration management of SM Leisure by taking on the board of administrators, finally permitting them to make the selections throughout the firm.
By means of this try for hostile takeover, HYBE appears to plan to train the administration management by dominating the board of administrators.
We all know higher than anybody else that underneath such a governance construction, it’s troublesome to make choices that prioritize the worth of all SM shareholders, together with the remaining 60%.
This is identical as returning to the incorrect previous of ‘SM for a sure shareholder’, which we’ve got been attempting so arduous to interrupt free from.
— Cheol Hyuk Jang
Cheol Hyuk Jang then states that he doesn’t consider that HYBE will assure indepence for SM Leisure and their administration as a consequence of the truth that they haven’t been speaking with SM Leisure.
HYBE’s CEO mentioned he’ll guarantee impartial administration of SM, however I can inform you how empty this promise is and the way troublesome that promise is to maintain. HYBE has not made any requests for due diligence materials to SM in the course of the M&A disclosure course of.
Based on HYBE’s disclosure on tender providing and buy of outdated shares, over 1 trillion received of capital shall be infused into this deal. And HYBE goes to take out a short-term mortgage to finance this deal.
Within the case of such large-scale borrowing, it ought to have been an merchandise for deliberation and voting at HYBE’s BOD (Board of Administrators), nonetheless, it’s a thriller how the BOD resolved an merchandise that includes funding of over ₩1.00 trillion KRW (about $772 million USD) with no due diligence.
It’s thought-about a typical sense and regular observe within the case of an M&A deal this dimension to endure a monetary audit or authorized due diligence primarily based on the info offered by the goal firm for merger earlier than any buying settlement is signed. On this regard, we expect that HYBE’s company governance is much from sound or rational.
— Cheol Hyuk Jang
He then goes on to speak about how SM Leisure and their artists’ future could appear to be as soon as HYBE and SM Leisure formally merge, severely hurting the promotion cycle of their artists.
If HYBE takes over SM, it’s inevitable that SM shall be topic to such weak governance. I wish to level out a few of the points that would probably come up if the father or mother firm turns into a enterprise competitor.
With the optimum album launch time restricted to 100 occasions a 12 months, HYBE is already saturated with the artists from its labels. Because of this, SM artists could have no alternative however to be placed on a decrease precedence.
As well as, SM will surrender the fan platform enterprise aspired by SM 3.0 and use the HYBE platform. Such a platform will merely improve some licensing income however not be correctly mirrored within the company worth. Because of this, SM will lose a brand new development engine by lacking out on the info that may assist deepen understanding on the followers.
Lastly, new enterprise alternatives which may assist SM 3.0 technique shall be extremely prone to be allotted to HYBE’s wholly-owned subsidiary. Along with the examples talked about, there should be many points that can not be addressed by the flawed governance construction the place a competitor turns into SM’s father or mother firm. I’m assured that this route won’t be the most effective for SM Leisure and its shareholders.
— Cheol Hyuk Jang
Whereas he does acknowledge that some people consider a takeover of SM Leisure by HYBE might be helpful and synergistic, Cheol Hyuk Jang believes the earnings would merely all be pocketed by HYBE or Lee Soo Man, restricted SM Leisure’s development.
Some say that there could be a synergy if SM artists joins HYBE’s Weverse platform. Nonetheless, as talked about earlier than, this is able to merely create extra earnings for HYBE with none advantages for SM. Somewhat, such a transfer would deprive SM of a chance to run its personal platform enterprise.
HYBE at the moment has a separate enterprise unit that monetizes IP held by its affiliated labels. This implies HYBE, not SM, would take the initiative in working the SM-owned IP and SM’s future earnings could be subordinate to HYBE.
HYBE says it is going to purchase former government producer Lee Soo Man’s stakes in SM Model Advertising in addition to his shares in DREAM MAKER. It insists that this goals at bettering SM’s governance construction. Nonetheless, the consumer of SM Model Advertising and DREAM MAKER is in impact restricted to SM Leisure.
The worth of those two corporations had been created due to SM Leisure, subsequently, the SM shareholders needs to be entitled to the worth of the shares.
On this regard, it’s inevitable to interpret HYBE’s buy of the 2 corporations’ shares as a transfer to supply extra premium to Lee Soo Man, finally resulting in the monetary lack of SM shareholders.
As well as, whereas the companies of those corporations are in competitors with Weverse, there isn’t a rationalization on how the companies of those corporations could be carried out after buying the shares held by producer Lee Soo Man. This solely will increase the possibility of the worth of those corporations being handed over to HYBE, whereas having no impression on the advance of SM’s governance construction.
— Cheol Hyuk Jang
Cheol Hyuk Jang then assaults HYBE for claiming to have the ability to create stronger synergies between HYBE and SM Leisure but not really explaining what any potential synergies could also be.
HYBE says it is going to “create a powerful synergy in numerous enterprise areas by buying SM”. Nonetheless, HYBE has not specified what synergy it’s and has not clarified the importance of the acquisition for SM’s shareholders.
We urge HYBE to make clear what synergy the acquisition would create for SM and to obviously state whether or not this is able to be benefiting the shareholders of HYBE or these of SM. SM and HYBE are the highest two, main leisure companies which might be main the Korean leisure market scene. If the 2 corporations are built-in, the mixed entity would create a monopoly by taking 66% of the entire market income.
— Cheol Hyuk Jang
He then worries for the remainder of the K-Pop business as an entire, as combining the 2 high K-Pop companies would smash the range of the K-Pop business itself, even attacking HYBE for his or her live performance ticket costs.
Moreover, as of Q3 2022, the 2 corporations’ mixed earnings from albums/digital music account for 70% of the market. Concerning live performance/efficiency revenue, the 2 corporations took up as a lot as 89%. Because of an integration, over 60% of the top-ranking artists by album gross sales could be underneath a single firm, undermining the range of the K-pop market.
Loads of indicators of market share indicate that HYBE’s acquisition of SM will undermine truthful competitors, which clearly exhibits that this acquisition is unfair. Within the Korean leisure market, the artists have put of their highest endeavors whereas the leisure companies have engaged in constructive competitors. This has enabled K-pop to realize its present international reputation and fandom.
Nonetheless, If HYBE takes the vast majority of the market share by buying SM’s managerial rights, K-pop would lose alternatives for a larger development ahead. In the end, K-pop followers would be the ones that shall be most affected by the monopoly.
SM places cheap costs to live performance tickets to permit broader scope of followers to take pleasure in cultural performances. In the meantime, HYBE has taken benefit of its place within the K-pop market to virtually double the live performance ticket costs as reported within the information a number of occasions not too long ago. HYBE is elevating not solely its personal live performance ticket costs but in addition these of the labels it has acquired, which illustrates the impression monopoly could have on the business.
The consolidation of SM and HYBE will speed up ticket worth improve, including burden to followers who love and assist K-pop and K-pop artists. The live performance ticket worth hike is only one instance. The monopoly created because of HYBE’s hostile acquisition of SM will trigger extra various and direct issues, together with decreased variety of artists, music and live shows.
— Cheol Hyuk Jang
Cheol Hyuk Jang then turns again to the “hostile takeover” itself, explaining that there have been quite a few points that had been current, with the switch not following correct protocol.
I’ve talked in regards to the unfavorable penalties HYBE’s hostile takeover could have on the shareholders, followers and furthermore, the K-pop market as an entire. However along with the ‘consequence’, I wish to speak in regards to the issues discovered within the technique of the hostile takeover.
Throughout HYBE’s SM share buy course of, buy of the shares held by the most important shareholder and the tender providing had been deliberate concurrently and had been introduced on the identical day. Buy of the outdated shares and the tender providing should be thought-about as the identical deal, and it needed to undergo preliminary examination of the Honest Commerce Fee.
Nonetheless, because it didn’t endure a preliminary examination, it’s problematic.
If HYBE secures greater than 15% of the shares by way of buy of outdated shares and tender providing on Mar sixth, they should shut the reporting of company consolidation by Apr fifth, which is 30 days after the acquisition date.
This will solely be seen as a pre-calculated plan to safe shares first then have an advantageous place on the SM Shareholder’s Assembly earlier than present process the preliminary examination by the Honest Commerce Fee. Even when the shares are bought, the Honest Commerce Fee examination will function a threat for SM’s future. If the company consolidation is rejected as a result of purpose of monopoly, a lot of SM shares shall be launched into the market, resulting in a plummeting share worth.
If a conditional approval for company consolidation is granted, there’s a risk that HYBE will scale back the scale of the SM, the acquired firm’s enterprise, to execute corrective measures prescribed by the Honest Commerce Fee. Even when approval is granted, the delay within the examination course of will create a setback for SM in executing its enterprise technique.
— Cheol Hyuk Jang
The subsequent matter turned to the tons of of staff who work at SM Leisure who additionally disapprove of HYBE’s acquisition of SM Leisure.
Voices of most staff who’ve constructed SM collectively are expressing resistance to HYBE’s hostile takeover.
Based on an nameless worker survey, 85% of staff oppose SM being absorbed by HYBE. HYBE’s hostile takeover is an act of ignoring the efforts of the staff who’re working day and night time, and the staff are voicing that they really feel “the custom and historical past of SM are being denied” and their “satisfaction has collapsed”.
As one of many staff, I’m additionally feeling empty and anxious together with my colleagues, and as CFO, I really feel an incredible sense of duty to resolve this case. We need to be clear once more that as within the assertion launched on February tenth, 25 SM executives, together with the CEOs, oppose to HYBE’s hostile takeover for the sake of shareholders, followers, the K-pop business, and staff.
Hostile takeover instances that occurred in opposition to the opinions of the BOD and the corporate, present in Korea in addition to different international locations, ended up destroying the enterprise efficiency of the corporate and finally broken shareholder worth. Even 100% share buy instances discovered abroad, confirmed similar outcomes. SM will proceed to oppose to hostile takeovers by sure main shareholders/teams whose enterprise pursuits could adversely have an effect on SM and can do our greatest to guard shareholder rights by establishing a sound and clear governance construction.
— Cheol Hyuk Jang
Lastly, Cheol Hyuk Jang calls upon the shareholders to attend for SM Leisure to unveil the total particulars of their SM 3.0 mannequin that was teased earlier within the month, hoping that they stick by the corporate and never take the tender provide that HYBE has proposed.
SM’s 2022 efficiency shall be introduced quickly. We shall be explaining the SM 3.0 enterprise technique, a brand new IP monetization mannequin following the beforehand introduced “Multi Manufacturing Middle/Multi Label” technique, together with efficiency targets. Together with the SM 3.0 abroad technique and funding technique, we are going to share the enterprise efficiency and company worth objectives of all SM associates. Together with the SM 3.0 abroad technique and funding technique, we are going to share the enterprise efficiency and company worth objectives of all SM associates.
I’m positive lots of you shareholders are attempting to determine what to do with the tender provide proposal by HYBE. I feel it will be helpful for our shareholders to not reply to the tender provide. As a result of the adjustments that shall be caused by SM 3.0 shall be of far larger worth to the shareholders. The share worth of SM has already exceeded the tender provide worth designated by HYBE, which is 120K Received and when SM 3.0 is realized, costs will go up even additional.
We are going to present the main points of SM 3.0 to you earlier than the time limit of utility for the tender provide. Please defer your determination till after you’ve heard the main points.
On a separate observe, the strategic partnership with Kakao, which the market is keenly fascinated by shall be disclosed intimately in our subsequent announcement. At this cut-off date when we’ve got simply taken step one towards SM 3.0, our executives and staff are dismayed and disheartened by the most important shareholder’s stake sale and competitor’s hostile takeover try.
This try is ignoring all of SM’s arduous work and efforts, in addition to the values that SM has pursued along with its artists. We’re nicely conscious of Lee Soo Man’s contribution to SM as founder and government producer. SM’s BOD (Board of Administrators) has decided to turn into the BOD for all its shareholders whereas defending the dignity of Lee Soo Man and SM’s legacy in addition to getting ready for the brand new leap for all our shareholders.
That’s the reason Lee Soo Man’s determination got here as a much bigger shock.
The function of our administration crew is to work for SM staff and artists, in addition to for followers and shareholders. This won’t change and shouldn’t change underneath any circumstance.
So long as our followers and shareholders consider in us, SM won’t cease taking a brand new leap ahead. Please stay up for and take note of our subsequent announcement concerning the SM 3.0 technique which can improve fan and shareholder worth.
— Cheol Hyuk Jang
As well as, the SM Leisure Staff Council shared an announcement that they might work to guard SM Leisure and assist Lee Sung Su and Tak Younger Jun.
Watch the total video under: