South Korean Games Publisher Com2uS Buys $47M Stock in K-Pop Giant SM Entertainment (Report)

Com2uS, a South Korean game publisher, has acquired a 4.2% stake in K-pop company SM Entertainment after acquiring 990,000 shares for an undisclosed amount in a two-week period.

The development was reported by several news outlets in South Korea, citing a Com2uS press release.

Com2uS reportedly didn’t disclose how much it paid for the shares, but Korea Economic Daily reports that the value of the acquired shares was 67 billion South Korean won ($47 million).

Com2uS reportedly bought the shares from Oct. 12-31, stating that it believes SM Entertainment in a press release cited by Korean news outlets Stocks are undervalued and that the company “has high growth potential for the future.”

Founded in 1995, SM Entertainment has grown into one of the largest K-pop agencies in South Korea. His list includes big stars like SUPER JUNIOR, Girls’ Generation, SHINee, EXO, Red Velvet, KANGTA, BoA, TVXQ!, NCT and aespa.

The company has a market capitalization of approx 1.57 trillion South Korean won. In comparison, its competitor HYBE, the parent company of BTS management team BIGHIT MUSIC, has a market cap of 5.15 trillion South Korean wonwhile the management of TWICE, JYP Entertainment is appreciated 1.96 trillion South Korean won.

But SM Entertainment’s stock price has fallen more than 10% since Wednesday (November 2) amid a volatile trading environment.

As of Tuesday (November 1), the company’s share price was down 22% from its April 1 peak 85,900 South Korean Won.

“SM Entertainment is one of the best entertainment companies that has led to the popularization of Korean popular culture around the world,” Com2uS was quoted as saying Korea Joong Ang Daily.

“It has sold foundations with sales of 700 billion won and net income of 130 billion won in 2021 and has the most diverse artist portfolio among K-pop agencies,” the company added.

It is reportedly speculated that Com2uS has built up its stake in SM Entertainment ahead of the agency’s next AGM scheduled for March 2023 to support SM Entertainment founder Lee Soo-man as minority shareholders push for his resignation as executive producer.

On October 14, SM Entertainment severed ties with Like Planning, a private company wholly owned by Lee, after investors raised concerns about the company’s annual payments of tens of billions of South Korean won to Lee’s company.

The company noted at the time that SM Entertainment paid 24 billion South Korean won to Like Planning in 2021, accounting for 3.42% of the company’s revenue in its most recent fiscal year.

Lee is SM Entertainment’s largest shareholder with an 18.5% stake. Like Planning’s contract was due to expire at the end of the year, but on October 14 the company’s board decided to end the contract after receiving “an intention to terminate the production contract early” in September.

At the time, SM Entertainment told shareholders, “With the thriving 25-year-old production system that Lee has established, he is confident that good up-and-coming producers will be able to navigate without much difficulty. He added that it’s also reasonable to accept the opinion of minority shareholders to resign (as chief producer). Korea Times reported.

Some analysts expect that the termination of the Like Planning contract will be beneficial for SM Entertainment.

“SM Entertainment’s earnings structure is likely to improve when the Like Planning contract ends… It will not only improve the company’s performance, but will also have a positive impact on stock prices,” said Choi Min-ha, a researcher at Samsung Securities , quoted Korea Times like I said in September.

Meanwhile, Com2uS denied it was acting as a “white knight” for Lee.

“This investment was made from a neutral position as SM’s current share price is more likely to rise in the future,” Korea said AJU Business Daily quoted an unnamed Com2uS official.

From a business perspective, Com2uS’ investment in SM Entertainment would support the game publisher’s Metaverse efforts given the entertainment agency’s extensive intellectual property portfolio.

SM Entertainment partnered with Los Angeles-based virtual reality concert platform AmazeVR in July to launch a Metaverse content production technology company called Studio Kwangya.

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