Tencent to become SM Entertainment's No. 2 shareholder via HYBE deal

Tencent Music Entertainment Group is set to become the second-largest shareholder of SM Entertainment Co. by acquiring HYBE Co.'s remaining shares in the K-pop pioneer for 243.4 billion won ($177 million).

The share deal, scheduled for May 30, comes amid growing expectations that China will likely lift its nine-year ban on Korean pop culture.

HYBE, the company behind boy band BTS, will unload 2,212,237 shares of SM Entertainment at 110,000 won apiece to Tencent after the close of the domestic stock market on May 30, according to its regulatory filing on Tuesday.

The shares represent a 9.66% stake, the second-largest holding after the combined 41.5% stake jointly held by Kakao Corp. and Kakao Entertainment Corp.

Since losing a fierce battle for control of SM Entertainment to Kakao, South Korea's dominant mobile platform, in 2023, HYBE has been gradually selling shares in the K-pop powerhouse.

“We are divesting non-core assets to sharpen our strategic focus. The proceeds will be used to secure new growth drivers,” said a HYBE official.

In 2023, HYBE acquired a 14.8% stake from the latter’s founder and former Chief Producer Lee Soo-man and later secured an additional 0.98% stake in the latter through a tender offer in a takeover attempt.

Analysts welcomed the stake deal for SM Entertainment.

“With Tencent becoming SM’s second-largest shareholder, SM stands to gain significantly if China eases its ban on Korean cultural content,” Lee Ki-hoon, an analyst at Hana Securities, said in a note released on Wednesday.

“Now that Tencent is investing in SM following its investment in Kakao, they will be able to generate various synergies in the Chinese market,” he added.

Tencent purchased shares in Kakao Corp. in the early 2010s. It holds a 6.01% stake in the parent of Kakao Entertainment as the No. 4 shareholder.

In response to HYBE’s announcement of its share sale, SM Entertainment said: “We’ll strengthen our collaboration with Tencent Music Entertainment.”

Write to Yeonhee Kim at yhkim@hankyung.com

Jennifer Nicholson-Breen edited this article.