After a 422.2 billion won (approximately P18.2 billion) deal with SM Entertainment founder Lee Soo Man, Hybe now owns a 14.8 percent stake in SM Entertainment. This purchase effectively means that Hybe is now SM Entertainment’s largest shareholder. Hybe has also sent a tender offer to buy 25 percent shares from minority stakeholders, which if successful will total to a 39.8 percent stake.

This is a really big move for both parties, and one that’s left fans of both agencies confused. So if you’re wondering what the hell this all means, we’ve answered some of your questions.

Wait, what’s going on?

To truly make sense of what’s happening, you’ll need this important bit of context: Things are very messy internally at SM Entertainment right now. How messy? Lee is currently suing SM Entertainment.

Let’s backtrack a bit. In truth, Lee, also known as the godfather of K-pop, selling his shares to another company in itself is not surprising. He had stepped down from his managerial role at the company in 2010, staying only as an executive producer and through an arrangement between SM Entertainment and his boutique record production company Like Planning. 

But SM Entertainment ended the contract with the production company last year. This is not a shocking decision though as SM Entertainment’s producing arrangement with Like Planning had long been a source of contention with shareholders (After the end of contract was announced, SM Entertainment’s stock reportedly rose.) Furthermore, it had been rumored for a while now that Lee, at that time the largest shareholder with 18.5 percent shares, was looking to sell his shares, with companies Kakao Entertainment, HYBE, and CJ reportedly competing over it. Soompi quoted an insider saying that Lee was looking to take his “hand off” the company. If anything, it seemed like Lee was poised to make a cordial albeit tense exit.

However, when current co-CEOs (one of whom is Lee’s nephew) announced their vision for SM’s new 3.0 era, they introduced a new multi-producing system. As executive producer, Lee had been responsible for the entire music production process, but the new system to diversify production effectively meant that the company was no longer dependent on him, which reportedly came as a shock as he had not been involved in that decision. 

Days later, news broke that Kakao Entertainment bought a 9.05 percent stake in the company, becoming the second largest shareholder after Lee. The purchase would also dilute his shares from 18.5 percent to 16.8 percent. In response, Lee called the purchase, allegedly made without his consultation and backed by activist fund Align Partners, unlawful, and filed an injunction against the company to block the sale. 

“SM Entertainment is currently going through a business management dispute between the largest shareholder Lee Soo-man and [Align Partners] clothed as a shareholders’ private equity fund. Therefore it is an act of illegality against the commercial law and article of association for the SM board of directors to issue new stock and convertible bonds to a third party,” Korea Herald quotes Lee’s law firm Yoon & Yang.

That is why the Hybe purchase, which took place only days after the Kakao sale, is seen as Lee and Hybe joining hands to counter SM and Kakao’s partnership.

In response to the Hybe purchase, SM Entertainment called it a hostile merger and acquisition. That’s not a value-judgment statement. According to Cornell University, a hostile takeover is “an attempt to purchase a controlling stake in a corporation without the consent of the board of directors of the target company, or else continuing to negotiate with shareholders after the board of directors rejects the bid.” By buying the largest shares in the company through Lee, Hybe acquired management rights without going through SM’s board of directors. 

“This M&A that came right after we announced SM 3.0 obliterates the efforts and values that SM and its artists have worked for. We want to make it clear that all our employees and artists oppose such a hostile M&A,” Korea Herald quotes SM Entertainment.

What seemed to be happening is that Lee, seeing Align Partners, Kakao, and the current CEOs allied with each other, sought out Hybe’s founder Bang Si-Hyuk (and his schoolmate from Seoul National University) to be his own ally within the company. 

If the gamble turns out successful, Hybe will own almost 40 percent of the company, giving it a considerable voting power on major decisions and elevating its status as a major player in the K-pop industry even more. However, some have speculated that Hybe actually isn’t Lee’s white knight (a white knight in hostile takeovers is a friendly investor taking over a business on the verge of being taken over by a black knight, or an unfriendly investor), but his exit strategy, and that Hybe is really joining forces with the rest of SM. 

With Hybe Labels CEO Park Ji Won stressing at press briefings yesterday that Lee “will not be involved in management affairs or producing affairs from here on” and that they won’t be paying him royalties, plus Align Partners urging Hybe to fully buy out the company, that seems to be the case.

If all of that seems complicated to you, we don’t blame you. All this interpersonal—and familial—drama is very much reminiscent of “Succession.”

Wait, so does this mean BTS and EXO are owned by the same company now? And Hybe now owns SM?

While there’s a lot of things that are still unclear about this deal, it doesn’t seem as if Hybe is planning on merging the two companies. As Park stated, “We fully respect the legacy of SM. We intend to ensure SM’s independence. SM is a company which has its own value. HYBE will provide SM with the resources it needs to expand, while retaining the agency’s signature color.”

It looks like the relationship between Hybe and SM Entertainment going forward will be similar to its relationship with the Hybe Labels. In case you didn’t know, Hybe already operates under a multi-label system, with its subsidiaries Big Hit Music, Source Music, Pledis Entertainment, Belift Lab, and KOZ Entertainment collectively known as the Hybe Labels. While they’re all under the Hybe bandana, these labels are able to operate on their own.

So, no. BTS and EXO are not suddenly label mates, just in the same way BTS and Seventeen (under Pledis) aren’t label mates, either.

Still, as the Korea Fair Trade Commission pointed out, this acquisition is the first one of its scale. Hybe, a relative upstart having been founded in 2005 and really only gaining momentum in the 2010s with their banner act BTS, acquiring a legacy company known as one of the Big Three in South Korea is, well, unheard of. There’s a world of difference between this and Hybe’s acquisition of Pledis in 2020.

What does this mean for K-pop?

Hybe is on an acquiring streak. While this is certainly their biggest acquisition, it’s not the only one they’ve done in recent years. (Again, notably, they acquired Pledis three years ago with the same strategy, becoming the label’s major shareholder.)

What this means exactly for the industry may be too soon to tell. As Hybe assumes more of it, we may expect acts to focus more on global outreach, a similar strategy employed with BTS. In response, other companies may follow suit or instead dial up their efforts to reach the domestic audience. We’re probably going to see more interactions between SM acts and Hybe Labels acts soon. We don’t know. The very least we can offer is that things are going to start looking very different than they did 10 years ago, and the titular Big Three may not be such titans of the industry anymore.

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