Lee Soo Man to sue SME over Kakao purchase, alleging the deal was made illegally

As a result of ‘SM 3.0’ being announced the other day, dissention within the company ranks was revealed, as artist Kim Min Jong came forward with allegations of essentially a coup against Lee Soo Man. Despite that, I was all prepared yesterday for Lee Soo Man to go away quietly one way or another, because dragging out a legal battle might be a mess for his baby, SM Entertainment. However, fortunately for all of us, he’s decided to go the messy route and is suing SME over their deal with Kakao.

Here we go.


Today, it was revealed that Kakao had secured a 9.05% stake in the company, thus becoming its second-largest shareholder.

Kakao bought 9.05 percent of SM Entertainment for 217.2 billion won ($172.8 million) to become the second-largest shareholder of the K-pop company, the two companies said Tuesday.
The tech company bought 1.23 million newly-issued shares at 91,000 won per share and 105.2 billion won of convertible bonds, which will give Kakao 1.14 million additional shares.
Kakao and SM Entertainment also signed a business agreement Kakao Entertainment to use their expertise in tech, entertainment and music to produce new K-pop artists and run global businesses.

Hilariously, SME described the deal as a “happy ending” to Lee Soo Man’s reign.

Describing the deal as a “happy ending” to speculation about a tie up dating back to May 2021, SM Entertainment said the capital raised through this deal will fund its new business strategy dubbed “SM 3.0” – establishing multiple production centres and labels as well as a music publishing-specialised subsidiary.

Hilarious because moments later Lee Soo Man announced his intention to sue SME, demanding an injunction to block the Kakao sale, accusing the co-CEOs Lee Sung Soo and Tak Young Joon of using illegal measures to get the shares necessary.

As it has been reported through the media, SM Entertainment is currently in a situation where there is a management dispute between its largest shareholder, Lee Soo Man, and Align Partners, which is a shareholder activist fund. Align Partners made a series of proposals to appoint an auditor for SM Entertainment’s regular shareholder meetings last year and since then, there have been various disputes over management rights made against Lee Soo Man, such as requesting access to accounting books and board meeting notes.
On January 20 of this year, SM Entertainment’s co-CEOs Lee Sung Soo and Tak Young Joon agreed to Align Partners’ proposal without consulting Lee Soo Man, the largest shareholder in the company. This action thus further increased the tension and management disputes between the company and the largest shareholder, Lee Soo Man.
It is clearly a violation of commercial law and the articles associated with the law for SM Entertainment’s board of directors, which is led by the co-CEOs, to issue new shares and convertible bonds to third parties at a time when there is such a dispute within the company.
SM Entertainment’s board of directors unilaterally distributed new shares and convertible bonds to the third party (Kakao) in order to expand their reach and make things more favorable to them as they attempted to secure a competitive edge in controlling the direction of the company. As the legal firm of the largest shareholder, we will block SM Entertainment’s board of directors’ attempts at this through an injunction, banning the issuance of new shares and convertible bonds and we will hold the directors responsible for this both civilly and criminally liable.

So yeah, it’s one thing for Kim Min Jong to say it in a company e-mail, but now it’s an official accusation from LSM’s side that the co-CEOs are basically attempting a coup in unison with Align Partners. He’s accusing them of issuing new shares illegally in order to obtain the Kakao investment, which would presumably serve the purpose of diluting the shares of LSM and his allies, in addition to being able to present a powerful front for other investors by uniting with Kakao.

I honestly have no idea if the coup side did anything illegal or not, and quite frankly I don’t really care, it’s just gonna be a messy and entertaining shitshow to sit back and watch. Personally though, given SME’s clandestine payments to a LSM’s Like Planning over the years and that the proposed plan modernizes the company and comes without LSM, if you’re a fan of an SME group you should be rooting for the takeover.


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