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On the 22nd, former SM executive producer Lee Soo-man and current SM management held their first court battle at the Seoul Eastern District Court in Munjeong-dong, Songpa-gu, Seoul, over new stocks and convertible bonds that SM Entertainment decided to allocate . to Kakao.
On the 22nd, the 21st Civil Division of the Seoul Eastern District Court (Chief Judge Kim Yoo-seong) held the first hearing date for former general manager Lee’s request for an injunction to prohibit the issuance of new stocks and convertible bonds against SM Entertainment (2023). Kahap 10034).
Previously, SM’s board of directors held an emergency board meeting on the morning of the 7th and decided to issue new shares worth about 111.9 billion won and convertible bonds worth about 105.2 billion won to Kakao through a third-party allocation. New shares and convertible bonds to be allocated to Kakao account for about 9.05% of the total shares issued by SM.
Against this, Lee, who is the largest shareholder, filed an injunction against SM on the 8th to prohibit the issuance of new shares and convertible bonds.
◇ Attempts to exclude management rights against management decisions for competitiveness = Representatives from both sides fiercely debated whether SM was currently in a management dispute or whether there was a significant managerial purpose to issuing new shares and convertible bonds to Kakao.
Hwawoo Law Firm (representative lawyer Jeong Jin-soo), which represents former general manager Lee, argued that the allocation of new shares and convertible bonds to Kakao by SM’s current management was an attempt to exclude former general manager Lee, who was the largest shareholder, of control rights.
Former general manager Lee said, “According to Article 418 of the Commercial Act, the principle of allotment to existing shareholders is the issuance of new shares, and the issuance of new shares by a third party is recognized as an exception. It appears that (SM’s current management) had no choice but to issue new stocks and convertible bonds in order to artificially deprive former general manager Lee of his position as a major shareholder.”
“The strategic alliance with Kakao is not tangible,” he said. in dire need of money,” he said.
In response, Lee & Ko (representative lawyer Kim Sang-gon), a law firm representing SM, objected that the issuance of new stocks and convertible bonds was an inevitable decision to strengthen SM’s competitiveness.
A representative from SM said, “SM was facing management problems such as declining competitiveness in IP distribution and IP production. I was lagging behind,” he said.
“There was also a chronic and serious problem in terms of IP production,” he said. “Former general manager Lee was unfairly receiving operating profit through an abnormal one-man production system. Operational improvement was needed due to the problem of reduced productivity and efficiency.”
◇ Management Rights Dispute VS Management Judgment = The two sides also differed in their views on whether SM was in a management dispute.
The former general manager’s representative argued that SM’s current management entered into a management dispute by unilaterally excluding Lee from the decision-making process, such as the announcement of SM 3.0 on the 20th of last month.
Former general manager Lee said, “Since the current management took various measures without consulting the largest shareholder, there was already a situation of management dispute.” And Align also shares interests in management rights with Kakao. ”
“This case is unprecedented in the sense that it is not a dispute over management rights between shareholders, but a dispute over management rights with the largest shareholder,” he said.
On the other hand, the SM representative countered that it was not a dispute about management rights, but a conflict of opinion about management’s opinion.
The SM representative said, “The current situation is close to the situation created by the former general manager.” “The current managers all expressed their intention to stand down at the regular shareholders’ meeting in March and not to re-appoint. also 0.33 Since it is only a percentage, it cannot be influenced, and since Kakao becomes a shareholder on the 6th of next month, voting rights cannot be exercised in this regular meeting of shareholders, so we cannot help the management current.”
“The essence of this case is whether the problematic management judgment of the main shareholder (Lee Soo-man) should be supported or whether the sound management judgment (of the current management) is correct,” he said. It’s a problem,” he said. He said.
In response to Lee’s request to make a decision by the 6th of next month, the payment date for the new shares, the court asked both parties to submit additional data by the 28th. After confirming this, he said he would decide whether to cite the temporary injunction.
Meanwhile, on the same day, the 22nd, Hive announced that it had acquired a 14.8% stake in SM.
Previously, on the 10th, Hive signed a stock purchase agreement (SPA) to acquire a 14.8% stake in SM from the former general manager. The payment date for the acquisition price of 422.8 billion won was scheduled for the 6th of next month, but Hive paid the price and the deal closed earlier than that. With this, Hive has risen to become SM’s major shareholder.
Park Ji-won, CEO of Hive, said in a press release that day, “Hive resolved the governance issues of SM and former general manager Lee in the process of acquiring shares. We will move forward,” he said.
