In the first legal battle held over the legality of SM Entertainment’s issuance of new shares and convertible bonds, Lee Soo-man, former general manager of SM Entertainment, emphasized ‘illegality’ and SM Entertainment emphasized ‘required measures for management’. As the future response of Hive and Kakao may vary depending on the results of the application for injunction, the two sides engaged in a fierce legal battle. The judge plans to receive additional written materials at the end of this month and make a decision later.
On the 22nd, the 21st Civil Settlement Division (Chief Judge Kim Yoo-seong) of the Eastern District Court of Seoul held an interrogation date for the application for injunction to prohibit issuance of new stocks and convertible bonds filed by former general manager Lee against SM Entertainment.
Neither former general manager Lee nor current SM Entertainment executives directly attended the trial. Former executive producer Lee Soo-man is represented by law firm Hwawoo, and SM Entertainment is represented by law firm Lee & Ko. At Hwawoo, representative lawyer Yoo Seung-ryong is leading the case, and in the square, representative lawyer Kim Sang-gon is leading the case.
Former general manager Lee argued that the issuance of new stocks to fight for management rights was illegal, while SM Entertainment argued that it was a managerial decision for the benefit of all shareholders. In other words, the issue in the workshop was whether to view the issuance of new shares by SM Entertainment as a management purpose or to accept it as a strategic decision in a management dispute situation.
Former general manager Lee said, “According to the commercial law, issuance of new shares is the principle of allotment to existing shareholders, and issuance of new shares by a third party is recognized as an exception.” did.
Regarding SM Entertainment’s claim, they pointed out, “There is no rational or objective explanation for the legitimacy of the means as well as the legitimacy of the purpose.” He pointed out, “It is far from the truth to point out only the creditor’s faults and frame them as a conflict between good and evil.” . In addition, regarding SM Entertainment’s claim that it was to improve the management structure, he added, “This is in fact explaining that the issuance of new stocks and convertible bonds is to deprive the status of the major shareholder.”
Former general manager Lee said that SM Entertainment’s decision to issue new shares was “a hasty decision” and that “the strategic alliance with Kakao has no substance and is just an excuse for a just cause.” There is no execution plan. Looking at the new stock convertible bond acquisition contract, Kakao has priority in additional new stocks allocated to third parties, but it is difficult to see it as a normal strategic alliance.”
Regarding the ‘urgent need for financing’ that SM Entertainment claims, “the debtor side has cash assets of 190 billion won and is generating a lot of operating profits, so external funds are not urgently needed.”
Lee, the former general manager, said that the 9% stake acquired by Kakao had artificially changed the shareholder composition to the extent that it could cause a change in the governance structure, and this is to say that Kakao is trying to secure control and start acquiring SM Entertainment at a low price. Criticized. In response, he asked to cite the application for provisional injunction, saying, “It is not appropriate for Kakao to acquire shareholder status in such an expedient way. It is legally illegal that it does not meet the requirements for issuance.”
Against this, SM Entertainment’s agent put forward the argument that “a conflict of opinions on management judgment and a dispute over management rights must be distinguished.” A representative from SM Entertainment said, “It’s not a dispute over management rights, it’s a conflict of opinions on management judgments.”
All of the current management’s term of office expires at the regular shareholders’ meeting in March, and the number of stocks held is small, so they cannot exercise any influence. Since the current management has announced that they will not serve a second term, and Kakao only becomes a shareholder in March, voting rights cannot be exercised at this regular shareholders’ meeting, where voting rights are exercised as of the end of December last year. That is not an acceptable position. The agent argued that the current management, Kakao, and Align Partners cannot be viewed as one team.
In addition, the agency of SM Entertainment explained that as an entertainment company, partnerships with platform companies are in dire need, and it is a natural move as YG and Hive have formed alliances in the form of capital alliances with Naver and Dunamu. He also argued that raising funds to improve productivity was also very urgent.
Regarding the issuance of new shares, SM Entertainment’s agent asked the court to dismiss the application for provisional injunction, saying, “It is a difficult decision to maximize the interests of the majority of shareholders through a new system within the extent of minimally infringing on the creditor’s personal honor and interests.”
The court announced that it would make a decision after reviewing additional documents submitted by the 28th of this month. Hive’s tender offer period is March 1st, and Kakao’s payment date for SM Entertainment’s new shares issuance is March 6th. On the 6th, Hive’s acquisition of the former general shares was also scheduled, but Hive advanced the schedule and completed the acquisition of the former general shares on the 22nd of this month, becoming the number one shareholder in SM Entertainment.
