Kakao CEO Namkoong Whon speaks to the press during an online media briefing on Aug. 26, 2020. Courtesy of Kakao

By Kim Jae-heun

Kakao has emerged as a strong candidate to acquire SM Entertainment, as it hopes to utilize the talent agency's intellectual property to compete with its platform rival Naver, according to industry officials, Tuesday.

CJ ENM entered talks last year with SM Entertainment to take over the talent agency. However, they did not find common ground in fixing the sell-off price and Kakao ended up taking CJ ENM's place, according to officials.

Kakao previously acquired EDAM Entertainment and Antenna Music to boost its entertainment business. However, it learned that they are not enough to compete against Naver, which has formed business partnerships with HYBE and CJ ENM. HYBE is home to globally successful K-pop band BTS.

If Kakao takes over SM Entertainment, it will be able to feature aespa, EXO and NCT in its original content and actively engage in the global over-the-top business.

SM Entertainment Founder Lee Soo-man / Courtesy of SM Entertainment

SM Entertainment also operates Dear U, an information technology unit that aims to become a global leader in the metaverse platform service. Kakao believes its crypto exchange affiliate Dunamu can create synergy with Dear U in the non-fungible token (NFT) business.

Both Kakao and SM Entertainment said it is true that the two companies are in talks over a business partnership and investment in shares, but stressed nothing has been decided.

"We are reviewing various ways to collaborate with SM Entertainment, but no specific details have been confirmed," a Kakao official said.

Currently, the sell-off price for SM Entertainment is estimated at between 600 billion won ($491.2 million) and 1 trillion won. The transaction subject is SM Entertainment founder Lee Soo-man's 18.72 percent share, which includes the talent agency's management rights.

"When SM Entertainment was in talks with CJ ENM, Kakao showed consistent interest in acquiring the entertainment firm. As far as I know, SM Entertainment and Kakao sat at the table to discuss the deal and the IT firm is said to have accepted most of the talent agency's requests," an industry official said.