Police Raids Kakao After Suspicions Of Stock Manipulation During The SM Entertainment Acquisition

Was it due to their feud with HYBE during the M&A?

Kakao and Kakao Entertainment were raided on April 6, 2023, by the Prosecutors and Financial Supervisory Service due to allegations of stock market manipulation. An investigation has begun to determine whether or not their mass stock acquisition was done under market price manipulation. Around 40 investigators and Financial Supervisory Service (FSS) special judicial police officers were sent to the offices of Kakao and Kakao Entertainment in Gyeonggi-do and Seoul.

On February 28, 2023, Kakao and Kakao Entertainment bought up 4.43% of SM Entertainment‘s issued shares, totaling 1,054,341 shares. This was one-third of SM Entertainment’s stock trading volume at the time. Although HYBE had made a tender offer of ₩120,000 KRW (about $91.10 USD) per share at that time, the stock price closed at ₩128,000 KRW (about $96.80 USD). HYBE’s public purchase failed as it did not meet the stock price. HYBE then asked the FSS to investigate Kakao and Kakao Entertainment, claiming they had tried to hinder public purchase by raising the stock price. The case was handed over to the prosecution, and an investigation of unfair trade of stocks was opened.

The Kakao building. | Hani News

Despite this, the feud for acquisition between Kakao and HYBE ended amicably as HYBE decided to give up its management acquisition. Kakao then became SM Entertainment’s largest shareholder with a 39.87% stake. But, criminal punishment could be imposed if the investigations reveal that Kakao tried to artificially keep the stock price above the bid price during the tender purchase process. Despite this, the acquisition cannot be nullified. A legal official advised, “Since it is a criminal punishment, there is no rule to invalidate the contract itself. If the contract is invalid, the stocks will have to be sold again, but it is close to impossible [that this will happen].

Source: Ilbo
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