April 20, 2024

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[THE INVESTOR] K-pop juggernaut S.M. Entertainment has ramped up efforts to equip itself with TV series production capacities and stronger actor and actress lineups in response to a growing demand for Korean TV content in the global market.

On March 13, the firm confirmed two planned acquisition deals worth a combined 80 billion won (US$74.9 million).

Along with anticipation for improvement in the relationship between Korea and China, the deals will extend the Kosdaq-listed firm’s growth that it has sustained for a year, analysts noted.

On March 15, S.M. Entertainment’s share price came to 42,800 won at the market’s close, up 2.4 percent from a day earlier.

A day prior, S.M. Entertainment recorded a 52-week high of 47,050 won. The firm recorded a 52-week low a year ago on March 21, 2017, at 22,150 won.

The firm became the 45th-largest firm on the second-tier market and the biggest among all listed entertainment firms, with 931.1 billion won in market cap. Foreign investors held 20.3 percent of stocks trading on the market as of March 16. 

S.M. Entertainment is a talent management agency that houses K-pop groups such as EXO, Red Velvet, NCT, f(x) and Girls’ Generation. Veteran boy bands like TVXQ and Super Junior are gearing up for new releases after their members ended their military service late last year.

The K-pop powerhouse’s announcement on Wednesday heralded its expansion into the TV content business, as it is set to become major shareholders of agencies that produce TV series.

According to regulatory filings, S.M. Entertainment in May will not only own 25.1 percent of Keyeast shares at the cost of 50 billion won, but also 30.5 percent of shares in FNC Add Culture worth 30 billion won.

Bae Yong-joon, an actor-turned-entrepreneur who holds 25.12 percent of Keyeast shares, will sell all his Keyeast shares to S.M. Entertainment, which would make the company the largest shareholder of Keyeast.

Bae, who rose to stardom with his lead role in “Winter Sonata” will in return be given 920,000 newly issued shares of S.M. Entertainment worth some 35 billion won.

S.M. Entertainment will also buy Keyeast shares worth 15 billion won and FNC Add Culture shares worth 20 billion won. Both Keyeast and FNC Add Culture are listed on the Kosdaq.

Another 10 billion won of FNC Add Culture, one of the key subsidiaries of FNC Entertainment, will be raised through a recapitalization.

Through the deals, S.M. Entertainment would become the largest shareholders of Keyeast and FNC Add Culture, in addition to SM Culture & Contents, in which S.M. Entertainment currently owns 38.21 percent of shares.

The three content producers aired a total of five TV series in 2017.

Analysts projected that S.M. Entertainment would emerge as a mainstream TV series producer, along with powerhouses in the TV production industry Studio Dragon and Jcontentree.

Jay Park, an analyst at Mirae Asset Daewoo, wrote in a note that S.M. Entertainment’s deals would “increase TV content’s market presence,” as subsidiaries under the entertainment giant will interoperate, maximizing “synergy effects.”

“Management agencies and content production agencies (under S.M. Entertainment) have mutual benefits within the content value chain,” wrote Park.

While pinning hopes on S.M. Entertainment’s momentum driven by new business opportunities, Park wrote that the content production arms are “unlikely to make immediate profits,” citing their disadvantage against rivals like Studio Dragon and Jcontentree when it comes to TV channels that air its series, intellectual property issues and creator know-how, among other factors.

If a thaw in the relationship between Korea and China materializes, momentum will be achieved sooner than expected, he added.

Another analyst, Kwon Yoon-goo from DB Financial Investment, wrote that the acquisition deals would push S.M. Entertainment to become a top-tier actors’ agency, with the addition of 41 actors and actresses including Park Seo-joon, Ju Ji-hoon and Ahn So-hee, as well as Kim Soo-hyun who is now serving his military service.

Meanwhile, the stock price did not instantly respond to the news of stock purchases. On Wednesday, S.M. Entertainment shed 2.4 percent from the previous trading day, while Keyeast dipped 6.1 percent. The prices of both shares on Thursday sharply jumped early in the morning, but the gains evaporated later in the morning.

Meanwhile, the Financial Supervisory Service has begun a probe into allegations of insider trading of shares of S.M. Entertainment, Keyeast and FNC Add Culture.

Immediately before the announcement, Keyeast surged over 20 percent on Tuesday alone, while S.M. Entertainment and FNC Add Culture jumped 18.5 percent and 15 percent, respectively, for three trading days until Tuesday.

By Son Ji-hyoung/The Korea Herald (consnow@heraldcorp.com)