Kakao Gets Approval to Acquire SM Entertainment Controlling Stake

Kakao Group was granted permission to buy a controlling stake in SM Entertainment. This news comes as the Korean Fair Trade Commission said on Thursday, May 2, that it imposed two corrective measures to address its concerns about the merger of the entertainment companies.

With the FTC’s decision, Kakao can proceed with the acquisition of an additional controlling stake in SM Entertainment. The local antitrust regulator said it would allow the merger but with conditions.

Conditional Approval for the Stake Buyout

As per Korea Joongang Daily, the FTC approved Kakao’s purchase of a 39.86% stake in SM Entertainment as long as it abided by the corrective measures. The commission explained that it laid down two forms of corrective measures so that concerns related to the merger could be fixed.

The first condition prohibits Kakao from refusing, suspending, or delaying music from Melon’s rivals upon their request. For the other one, the FTC requires Kakao to set up an independent group with at least five external members so that the agency can monitor any possible favoritism since Kakao owns the Melon music streaming service, which it may favor later with music releases.

Kakao’s Increased Stake Ownership

In March of last year, Kakao became the largest shareholder of SM Entertainment after buying more stakes. Its shares grew from 4.9% to 39.87%, so it now has more control over the company. The anti-trust regulator only approved the latest buyout after months of assessment.

"We decided to approve the merger on conditions that Kakao's online music streaming platform, Melon, takes corrective measures based on the judgment that Kakao solidifies its vertical integration in the industry and it practically hinders competition in the domestic digital music streaming market," Yonhap News Agency quoted Korea’s Fair Trade Commission as saying in a statement.

Photo by: SM Entertainment Website