Tencent becomes SM's No. 2 shareholder

K-pop powerhouse Hybe is offloading its entire stake in industry rival SM Entertainment to Tencent, positioning the Chinese tech giant as SM’s second-largest shareholder and ending a tense chapter between the two rivals.

According to a regulatory filing Tuesday, Hybe will sell about 2.21 million shares to Tencent Music Entertainment Hong Kong, a Tencent subsidiary, via an off-hours block trade Friday. The shares are priced at 110,000 won ($80) each, valuing the deal at roughly 243.35 billion won.##

Tencent will replace Hybe as SM’s second-largest shareholder with a 9.66 percent stake. Korean IT giant Kakao remains the largest shareholder, with 41.5 percent through itself and its content arm, Kakao Entertainment.

Hybe said the divestment is part of efforts to streamline its portfolio and enhance investment efficiency.

“We are streamlining noncore assets to focus on our main business,” the company said, adding proceeds from the sale will be used to drive future growth initiatives.

Hybe is the label behind global sensation BTS, while SM is seen as a pioneer in the K-pop industry, known for launching influential acts such as Girls’ Generation, EXO, Red Velvet, NCT and aespa.

The latest deal marks the end of an uneasy alliance stemming from Hybe’s failed takeover attempt of SM. In early 2023, Hybe bought a 15.78 percent stake, including 14.8 percent from founder Lee Soo-man, amid an ownership battle between Lee and SM executives. Despite investing about 550 billion won in its bid, Hybe was ultimately outmaneuvered by Kakao.

Hybe has since trimmed its holdings and is now exiting at a modest gain, according to reports.

Analysts see Tencent’s entry as a potential tailwind for SM.

“SM shares have been stuck in the 120,000 won range due to overhang concerns (from Hybe’s stake), and it’s positive that this risk is being removed,” said Ji In-hae, an analyst at Shinhan Securities, who raised her target price for SM to 160,000 won from 130,000 won.

SM shares closed Wednesday at 128,300 won on the Kosdaq bourse, after rising to an intraday high of 139,400 won, up 7.3 percent on excitement over the sale, before cooling to end down 1.2 percent. Hybe closed at 279,000 won that day.

Tencent’s backing could also reinforce SM’s activities in China, as expectations grow over a potential easing of Beijing’s tacit ban on Korean pop culture. Tencent already holds stakes of about 6 percent in Kakao and 4 percent in Kakao Entertainment through subsidiaries, and has longstanding ties with Korean labels through distribution and investment.

“With its new stake in SM, Tencent is likely to strengthen collaboration among the entertainment companies it has invested in,” said Choi Min-ha, an analyst at Samsung Securities. “Once the Chinese market reopens, SM could be one of the biggest beneficiaries.”