It has been reported that Kakao Entertainment is considering CJ Group as an ally in acquiring SM Entertainment shares.

If a large chaebol like CJ Group decides to participate in the stake purchase, the SM Entertainment management dispute is expected to intensify as it will grow into a confrontation between 'Kakao + CJ + SM Entertainment management' and 'HYBE + Lee Soo Man.'

On February 14, according to Investment Banking (IB) and entertainment industry sources, Kakao attempted to involve CJ in the dispute over the management rights of SM Entertainment. Kakao is already the second highest shareholder of SM Entertainment with a 9% stake in the company, but Kakao is planning to purchase up to 19.9% of SM Entertainment with CJ, through a paid-in capital increase or tender offer, while buying shares held by institutional investors such as KB Asset Management.

Kakao is considering offering shareholders a higher price than the 120,000 KRW (94.28) per share proposed by HYBE in the event of a block deal or tender offer. This is being interpreted as Kakao's move to win over support from minority shareholders of SM Entertainment. Previously, HYBE announced that the company would take a public bid for a 25% stake in SM Entertainment at 120,000 KRW per share.

Kakao is also counting on the influence of minority shareholders in Align Partners, led by CEO Lee Chang Hwan. Align Partners is considered a "Partner" of Kakao in this dispute and expressed a negative stance on HYBE's tender offer price, stating that "120,000 KRW per share is too low considering SM Entertainment's future value."

It is known that CJ has been paying close attention to the acquisition of SM Entertainment since early 2021 when Lee Soo Man sought to sell his stake. CJ was on the verge of taking over SM Entertainment, but before closing on the deal, Lee Soo Man demanded that he maintain his existing role and be treated like a vice president of the group, and the negotiations ultimately fell through.

CJ has been continuously discussing the acquisition of SM Entertainment even after the acquisition negotiations fell through. This is because the company predicts that SM Entertainment's K-pop intellectual property (IP) will be able to create synergies with CJ ENM's music business. CJ ENM is the largest general entertainment company in Korea but was evaluated as lacking in intellectual property in the music field compared to its competitors.

With the recent management dispute between Lee Soo Man and SM Entertainment and other competitors such as HYBE and Kakao showing interest in SM Entertainment's management rights, CJ is also paying close attention to the situation. However, it is uncertain if CJ will join the battle to obtain management rights of SM Entertainment.

This is because of CJ ENM's financial situation. At the end of last year, CJ ENM's net debt was 2.12 trillion KRW (~1.7 billion USD), an increase of 3.6 times from 2021, and its cash ratio also decreased from 63.9% to 31.2%.

Large-scale investments are required, and there is much public interest in the acquisition of SM Entertainment. Additionally, The parent company CJ Group must make the decision whether or not to build an alliance with Kakao during the acquisition battle, not a subsidiary company like CJ ENM. A high-ranking official at CJ emphasized, "We are not considering acquiring Kakao and SM Entertainment, and we have no plans to do so."