‘Lee Soo-man resigns’ SM intensifies… Notice of legal action as Kakao’s second largest shareholder

The fight within SM Entertainment is deepening. When the board of directors decided to resign as the main shareholder, Lee Soo-man, and sell part of his share to Kakao, Lee Soo-man protested strongly. It is likely to lead to legal proceedings in the future. It seems that SM, who created the ‘1st generation idol’ industry, will be going through labor pains for a considerable period of time.

The essence of SM was whether Lee Soo-man, the main shareholder, would maintain the one-man system or not.

Lee Soo-man, who founded SM in 1995, has led the company as an executive producer. After resigning as a registered director in 2010, he founded Like Planning, a private company, and has been receiving more than 20 billion won annually in the name of production.

The activist management company Align Partners which represents minority shareholders rebelled against this system. In February last year, Align Partners initiated a shareholder proposal to appoint an auditor to SM, and as a result of the shareholders’ meeting, a new auditor was appointed. Aligned then intensely on the issue of Lee Soo-man’s one-man system, and as a result, on the 3rd, a year later, SM announced the ‘SM 3.0 era’, a production system without Lee Soo-man. Lee Soo-man, the largest shareholder, accepted the resignation request.

After the announcement of ‘Lee Soo-man’s resignation’, the share price immediately followed. Kakao announced on the 7th that it had secured a 9.05% stake in SM Entertainment and became the second largest shareholder. It is a method of acquiring 1.23 million new shares issued by SM Entertainment in the form of a paid-in capital increase issued by a third party, and securing 1.14 million shares (based on conversion to common stock) through the acquisition of convertible bonds. The total procurement amount is 217.152 billion won. Kakao signed a business agreement with Kakao Entertainment and SM Entertainment.

Currently, Lee Soo-man owns 18% of SM shares. Some in the industry even say that if Kakao buys more shares, the largest shareholder may change.

Lee Soo-man’s side is also not going to be alone. Lee Soo-man’s team protested through its legal representative, the Hwawoo law firm, that it was a “clearly illegal act.”

“SM’s Articles of Incorporation allow the assignment of new stocks or convertible bonds to a third party only when there is a business need, such as emergency funding,” Hwawoo said. Issuing new stocks and convertible bonds to third parties is clearly an illegal act in breach of commercial law and the articles of incorporation.” “The purpose of fundraising set by the SM board of directors is only a superficial reason to appear in accordance with the commercial law and the articles of incorporation,” he said, “It is an illegal act and its main purpose is to change the governance of the relationship .”

“As the representative of the largest shareholder, we will fundamentally block any illegal attempts by the SM board of directors through temporary injunctions prohibiting the issuance of illegal new stocks and convertible bonds, and we will hold all legal responsibilities, civil and criminal, against. directors who voted in favor of the illegal decision. I will ask,” he said.

Even among the internal members, a debate is going on.

Singer and actor Kim Min-jong of SM sent an email to all SM employees on the 5th, saying, “Contrary to what has been announced, Lee Seong-soo and Tak Young-joon, co-CEOs who are for Teacher Lee Soo-man and for the SM family, have stopped all conversations with the teacher (Lee Soo-man). I cut him off and said goodbye to the unilateral announcement without any discussion with the insider,” he said.

In an anonymous community of SM office workers, “I think I will be weeded out in the market without big changes. An opinion was raised in favor of the SM system, which is just short of completion, saying, “We need to stay awake and not get drunk on the glories of the past.”