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| ▲This photo shows photo of HYBE. (Yonhap) |
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| ▲This photo shows Kakao. (Yonhap) |
SEOUL March 14 (Yonhap) -- The Securities Industry predicted on March 13, that Kakao, the final winner in the acquisition of SM Entertainment competition will gain the upper hand among Entertainment industry within South Korea.
Hybe Entertainment, which reached a dramatic agreement with Kakao, also saw the situation to be a positive outcome stating that it has resolved concerns over the "chicken game" both company has been playing over the acquisition of SM Entertainment. However, stock prices of the SM Entertainment are expected to undergo large fluctuation in the near future.
Kim Hyun-yong, a researcher at Hyundai Motor Securities, stated, "By successfully acquiring SM Entertainment’s management rights Kakao will upgrade the corporate value of Kakao Entertainment.” Continuing on, the researcher assumed that Kakao will secure a position comparable to No. 1 in the industry given their combined record of sales.
Moreover, researcher addressed “If Kakao and SM are combined, annual record sales hits over 25 million copies and the number of audiences gathered throughout shows consist over 2.5 million," adding "This is close to the record set by industry's No. 1 HYBE Entertainment, and the third to fourth-ranked competitors are distributed between 5 million and 12 million albums sold and 1.5 million to 2 million audiences gathered at the scene of the concerts."
Continuing on, given the record of physical albums sold 4 of the K-pop artists who are within the top 15 of the artists, are part of the SM Entertainment.
Researcher Kim Hyun-yong stated, "It is also positive that we have expanded our options regarding Kakao Entertainment's IPO, including a bypass listing through a merger with SM Entertainment in the future."
Kim Ha-jung, a researcher at Daol Investment & Securities, analyzed the situation as that Kakao might aim for global expansion through SM Entertainment.
Until now, Kakao Talk has had a limitation in that the number of monthly active users shortened as MAU in Korea overwhelms overseas MAUs, but his analysis is that SM's overseas fandom can be expected by adding the K-pop fan platform function within the service.
Researcher Kim Ha-jung stated, "This inflow of global users can create high synergy not only with the content business but also with Kakao's core business, TalkBiz business," adding, "Kakao's acquisition of SM Entertainment is very successful."
Moreover, researcher calculated the SM Entertainment’s corporate value, sales, and operating profit ratio based on Kakao's bidding price of 150 thousand won per share and compared it with rival JYP Entertainment's operating profit ratio and addressed "Kakao acquired SM Entertainment at a great price considering the management premium," researcher judged that there was no "winner's curse"
HYBE Entertainment suspension of competition with Kakao to secure SM Entertainment’s shares was cited as a positive factor in resolving concerns over massive loss of funds and taking advantage of collaboration with Kakao through platform.
Park Sung-kook, a researcher at Kyobo Securities, addressed, "If HYBE Entertainment attracts about 1 trillion won in investment and borrows 300 billion won to buy back, it will not only dilute its stake in existing shareholders but also cause a 'winner's curse' even if it succeeds due to increased interest costs."
Researcher Kim Ha-jung also stated, "HYBE Entertainment seems to have failed to acquire SM, but platform collaboration with Kakao has become possible without spending trillions of dollar," adding, "The profits that HYBE Entertainment will gain will be confirmed after the platform collaboration plan centered on SM Entertainment is embodied."
HYBE Entertainment declined to say that there has been no specific plans on what to do with the 14.8 percent of stake bought from former major shareholder Lee Soo-man and the 0.98 percent shares secured through a tender offer, but various measures are being discussed in the industry, including the possibility of responding to Kakao's tender offer.
Researcher Kim Hyun-yong stated, "The mid to long-term effects are expected to vary depending on whether HYBE Entertainment’s current shares in SM Entertainment remains," adding, "It is positive that if it maintains a 15.78 percent stake and remains as the second-largest shareholder, it will have some influence on SM Entertainment’s decision-making process in the future."
It was agreed that SM Entertainment’s stock prices will undergo volatility in the short term.
Researcher Kim Ha-jung predicted, "SM Entertainment’s stock prices will experience high volatility in that uncertainties over whether rapid earnings growth can be achieved through implementation of 'SM 3.0' which has not been resolved," and researcher Kim Hyun-yong addressed, "Kakao's tender price is expected to be significantly reduced."
(This article is translated from Korean to English by Joonha Yoo)
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