SM Entertainment raised concerns over the K-pop industry monopolization that could result from Hybe’s acquisition of SM.

SM Entertainment’s Chief Financial Officer Jang Cheol-hyuk took to the company’s official YouTube Channel on Monday to lay out the reasons why the company opposes Hybe’s “hostile” merger and acquisition. The video was titled "The reason why SM is against HYBE's hostile takeover."

“SM and Hybe are the largest entertainment companies leading the local industry. When merged, they will be responsible for more than 60 percent of the total market, thus monopolizing the market,” Jang stated in the clip. "The M&A would harm the diversity in the K-pop industry as together they will be responsible for 70 percent of the market’s music revenue and for 89 percent of performance revenue. Those who will suffer the most from this monopoly will be the fans.”

On Feb. 10, Hybe signed a deal with SM’s founder and former producer Lee Soo-man to buy his 14.8 percent stake in SM for 422.8 billion won ($334.28 million), making Hybe the largest shareholder.

The CFO claimed that the M&A disregards all the efforts that around 600 SM employees have put toward making SM the No.1 entertainment company. It also disregards SM’s value and pride established together with its fans and artists, he said.

“Hybe is trying to exercise management rights by taking over SM’s board of executives. Such governance would make it hard to prioritize the values of all shareholders. This would make Hybe’s promise to secure SM’s independent business operation hard to keep,” Jang said.

Hybe is also attempting to buy off minority shareholders’ shares via a tender offer to acquire 40 percent of SM’s total shares for which it will be injecting more than 1 trillion won ($770.83 million).

Although the acquisition of SM shares is a crucial decision that requires more than 1 trillion won, there has been no request for data to SM for due diligence, implying that Hybe is governed by a single major stakeholder, Jang said, alluding to Hybe’s founder and chairman Bang Si-hyuk.

Another concern raised in the video is that Hybe would push back SM artists’ album releases to prioritize those of its own artists, as the Korean record industry limits the release of new records across all genres to 100 per year.

It also pointed out that if SM begins to use Hybe’s fan platform Weverse instead of its own, SM would lose out on a significant data source for understanding its artists’fans.

In addition, a major potential issue is losing new business opportunities for developing the SM 3.0 strategy, which involves establishing five different production centers and independent music labels to diversify production. These opportunities are likely to be allotted to subsidiaries owned by Hybe.

“We hope to develop our global business capability and our (intellectual property) monetization by acquiring a new growth force through SM 3.0 when maintaining our legacy and identity,” Jang emphasized.

SM urged shareholders to make their decision after looking into the overall strategy of SM 3.0, which the company will continue to share before Hybe’s tender offer application deadline scheduled on March 1.

The SM Entertainment Employees Council, which consists of 208 SM employees, also released a statement on Monday claiming that they have been used for Lee Soo-man’s illegal activities, such as illegal profit-taking and tax evasion.

“We will protect the unique identity of SM and the diversity of K-pop. The culture of SM cannot be subordinated to Hybe’s assets. We support and stand for the co-CEOs Lee Sung-su and Tak Young-jun, and the multiproducing strategy of SM 3.0. Further, we demand much stronger protection from any harm to our fans and artists,” the statement said. “We hereby oppose the hostile M&A of Hybe and expedient attempts of entering into SM’s board of directors. We will fight against this abnormal action from Hybe to occupy SM.”