Kakao Corp spurs the friendly acquisition of SM Entertainment

Kakao corporation (KRX:035720), the biggest IT company in South Korea, has entered into a final agreement with SM Entertainment (KOSDAQ:041510), a leader in Korea’s entertainment market, to buy a controlling stake in the music label. Through this acquisition, Kakao enables to take first place in the entertainment industry.

According to an investment bank firm (IB), Kakao is ready to acquire an 18.72% stake from Lee Soo-man, a head producer of SM Entertainment, who is the largest stockholder. Under the terms of the Share Purchase Agreement, Kakao will pay around one trillion KRW in exchange for the security of SM Entertainment, and it will be completed within this month.

“In the past, the entertainment business is just the field of music. But now, in this era, reinventing the traditional business model is inevitable. Consumer demand and their eyesight is rising year by year. We should meet their appetite by developing our property,” Lee, the main producer of SM Entertainment, said.

CJ ENM (KOSDAQ: 035760), one of the most extensive entertainment and media corporations, was a strong candidate for this deal. However, they decided to withdraw from the negotiations.

“Kakao had kept watching this acquisition deal when SM was in talks with CJ ENM. We are excited to become the leading position in Korea’s content market. We have a rosy outlook from this deal, and both entities will significantly realize synergies,” Joy Lee, a co-CEO of Kakao, said.

Kakao could reach around 20 trillion KRW in corporate valuation after the acquisition. Although Kakao has had dozens of affiliates past few years, its achievements have an estimated weak signal than other business sectors. However, since SM Entertainment has notable artists such as NCT, Super M, EXO, and Red Velvet, the combination of technology from Kakao and cultural intellectual property from SM is expected to extend the entertainment content industry field.

“It will be our first step to take the lead in the global content market with SM. We are expected to become one of the nation’s top three entertainment agencies, along with Hive and YG Entertainment. From now on, Kakao is cultivating a new era of IP business, content creating, and K-POP business,” Kim Sung-Soo, CEO of Kakao, said.

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