Thread by @tmikpop

SM executives who ousted Lee Sooman and led an internal rebellion for Kakao are using the company’s money to “take care of the founders." According to the IB industry on the 17 Nov, SM Ent acquired artist management business 10x Entertainment for 2.2B.

The acquiring company is Kreation Music Rights, a wholly owned SM subsidiary headed by former CEO Lee Seungsoo (Chris Lee). 10x Ent was founded in 2020 and the only artist is Kim Woojin, a former member of JYP’s Stray Kids.

The company only has 3.12M cash on hand and its liabilities exceed the assets by 800M. SM paid a 3B management rights premium to acquire it. An industry observer said that this was the first time an agency with only one act has been acquired.

Even within SM, the acquisition of 10x Ent was controversial. Four people are listed as 10x Ent directors: Choi, Yoon, Lee and Kim. Choi and Yoon hold concurrent positions within SM Ent. Choi was the CEO of 10x Ent until Sept when the acquisition took place.

Choi is the head of SM Ent’s IT Business Center and Yoon is a senior employee of SM Ent and serves on the ICT team. Choi is known as the right hand man of Chief Strategy Officer Jang Jae-ho. He co-founded Mystic Story in 2013 with Yoon Jong-shin.

He then left to start 10x a company that combined IT and entertainment. It did not really do much. In 2021, Choi joined SM Brand marketing after Lee Seungsoo recommended Choi to Lee Sooman as a new business expert.

Choi proposed many business ideas to LSM including using SM Brand Marketing's main business (artist merch) and combining it with IT tech. His proposals for blockchain, bitcoin, NFTS, etc were not used because there was no substance to the proposals.

Along with Yoon, Choi was one of the three people recruited by CSO Jang Jae-ho to carry out the rebellion. These are the people that CSO Jang trusts and relies upon as he operated without a formal designation

(Jang was fired in Oct 2022 and came back on 13 Mar when Hybe pulled out of the takeover battle). Choi and Yoon were later elevated to official positions (within SM) after the successful revolt by the current execs which led to ousting Lee Sooman and blocking Hybe’s tender offer.

Choi and Yoon moved into SM headquarters in March after the management dispute had been resolved. According to internal sources, CSO Jang promised to buyout Choi’s company to the extent that he could using SM Ent’s funds without board resolution and promised to compensate him

in other ways in the future. SM Ent tried to take over 10x but because it was controversial within the company, they secretly acquired it using KreationMusicRight. Kreation Music Right’s acquisition of The Hub for 6.3B is also under scrutiny.

In April 2020, JYP Ent acquired JYP Publishing, the personal company of owner Park Jinyoung, for 2.6B At the time JYP had net assets of 1.2B and a positive net profit. Founded in 2020, the fair market value of the Hub’s net assets was 200M.

SM Ent paid over 6B premium for the management rights. Even though the Hub is gaining recognition for producing music for acts like Itzy, NCT, and Kang Daniel, it is unclear whether the valuation is appropriate compared to JYP who has proven his ability to foster a number of acts

These aren’t the only entities who have received the favor of SM Ent. BCG, a consulting firm that has been assisting CEO Jang since Oct 2022 in the management rights defense and reorganization is also sitting on a cushion of money.

it is reported that BCG has received billions in consulting fees. According to an industry official, most of the BCG’s work has been benchmarking New Jeans success (meaning they are studying New Jeans and making notes on the group’s activities and achievements).

Company A, a PR agency that signed a 1.3B contract with SM in Feb 23, has also won the jackpot. The main tasks are known to be posting favorable comments on SNS for existing SM management, including former CEO Lee Seungsoo, and increasing the views on YouTube videos posted by LSS

Immediately after taking control of the company, the current management proposed a compensation plan that included the expansion of stock options for executives and employees but this was placed on hold.

Previously, in Feb of 2022, CSE Jang led another compensation plan that paid 13.2B worth of stock grants to executives and employees. CoCEOs Lee Seungsoo and Tak Youngjoon received 20,000 shares, CSO Jang received 8,000.

He sold all 8,000 on the market after 6 months and collected 600M in cash. Former general manager Lee Sooman was reportedly furious over this and fired CSO Jang. (this was in Oct 2022 when Jang was fired)

It is predicted that CSO Jang who coordinated the negotiations between Align Partners and Kakao during the SM Ent management dispute will try to pass the compensation plan again.

An official from SM Entertainment said that the compensation plan is not only for management but for all employees. n.news.naver.com/article/015/00…

In a subsequent article, SM is quoted as saying that the acquisitions were deemed necessary for growth and that the agency and music publishing businesses were acquired after an external evaluation. n.news.naver.com/mnews/article/…