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SM Entertainment Group’s office in Seoul’s Seongdong District. (Yonhap)

The game of chicken between Kakao and Hybe over the acquisition of SM Entertainment has ended with Hybe dropping its bid. The two companies came to an agreement: Kakao is to acquire managerial rights, while Hybe is to cooperate with both Kakao and SM Entertainment on matters related to their platforms.

The dramatic agreement between the two companies seems to have been driven by concerns that, as the takeover competition grew increasingly heated, the winner would end up not reaping enough benefits.

In a press release on Sunday, Hybe stated that “the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment. The company has also taken into account the potential negative impact on HYBE's shareholder value,” and announced that it would suspend its acquisition of SM Entertainment.

Kakao also announced in a statement that it and Kakao Entertainment “respect” Hybe’s decision to stop the move to acquire SM Entertainment, and that Kakao and Kakao Entertainment will “continue various strategic cooperative relations” as partners sharing mutually positive impacts.

The decision to bow out of the competition comes around a month after Hybe acquired a 14.8% stake from Lee Soo-man, the former executive producer of SM, for 42.28 billion won and launched a tender offer for additional shares. Kakao and Hybe had been negotiating for 10 days to prevent the SM tender offer from becoming a “game of chicken,” and reached an agreement on Sunday.

After Hybe’s initial tender offer of 120,000 won per share was met with a lackluster response from shareholders, Kakao immediately upped the ante by offering 150,000 won per share. In response, SM Entertainment’s stock price soared to a high of 161,200 won on Wednesday, before closing at 147,800 won on Friday.

Kakao also laid out the direction of its cooperation with SM.

“We will ensure the autonomous and independent operation of SM Entertainment so as to respect the company’s strongest assets—employees, artists, and fans—and accelerate global growth centered on the future-oriented vision of SM 3.0 and other projects proposed by the current management team,” Kakao said.

SM Entertainment also released a statement on Sunday stating that the new “SM 3.0 Board of Directors,” which will launch at the shareholders’ meeting on March 31, will “create synergy with Kakao, our strategic partner, and open up the ‘next level’ of the K-pop industry.”

Kakao plans to proceed with the tender offer until March 26 to acquire up to 40% of SM Entertainment. It is yet to be determined what Hybe will do with the 15.78% stake that it acquired from Lee Soo-man.

SM Entertainment, founded in 1995, is a leading South Korean entertainment company that has led the global Korean Wave and K-pop craze that started in Japan.

By Ock Kee-won, staff reporter; Jung Hyuk-june, staff reporter

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