[아이뉴스24 정유림 기자] At the trial over Kakao’s alleged violation of the Capital Markets Act during its acquisition of SM Entertainment (SM), Kakao’s lawyer argued against the prosecution’s claim that SM was acquired to overcome the worsening financial situation of Kakao Entertainment, its comprehensive content subsidiary, and the resulting crisis.
At the trial held by the 15th Criminal Arrangements Department of the Seoul Southern District Court on the 23rd, a witness interrogation was held against Kim, the head of the Future Strategy Department of Kakao Entertainment. The prosecution determined that former CEO Bae and others mobilized approximately 240 billion won from February 16 to 17 and February 27 to 28 last year to buy SM shares at high prices and manipulated the market price with the aim of increasing the public offering price of 120,000 won. by rival hive. In particular, it was believed that Kakao Entertainment was trying to find a solution by acquiring SM as it became difficult to conduct an initial public offering (IPO) due to worsening financial conditions such as rapidly increasing debt.
Kakao’s lawyer refuted this by presenting Kakao Entertainment’s audit report. Kakao’s lawyer said, “As part of the prosecution’s indictment, Kakao Entertainment expanded its investments, including the acquisition of US-based webtoon platform companies Radish and Tapas, resulting in a sharp increase in debt. As net losses for the period increased, the business and financial situation deteriorated rapidly and needed to be improved. “It is written to the effect that the IPO itself would not be possible if there was no other way to do it,” he explained.
At the same time, “Kakao Entertainment’s net loss in 2022 was approximately KRW 443.2 billion, an increase of approximately KRW 200 billion compared to the previous year (2021),” he said, “about KRW 150 billion of the increase in net loss during the period was due to the reflection of impairment losses on intangible assets such as goodwill amortization. “In the end, the accounting aspect was the main factor rather than an issue with the company’s performance or profitability itself.”
In addition, Kakao’s lawyer said, “Generally, entertainment companies have more intangible assets such as goodwill and intellectual property rights (IP) than physical assets,” adding, “Goodwill depreciation is a condition where goodwill can no longer be amortized after a certain period of time.” One feature is that as of this year (2024), 1.3 trillion won of the 1.5 trillion won acquisition cost of goodwill has been amortized, and the remaining goodwill is now assessed at around 200 billion won, and the reflection of goodwill impairment losses in the financial statements has been completed to a certain extent. “According to the rules, we are in a situation where there will be no significant impact,” he said.
On this, Director Kim said, “I am not an accounting expert, so this is an area I don’t know much about,” but added, “For me, I mainly focus on operating profit and operating profit before amortization (EBITDA). Although there was a decline in operating profit, it was not a significant decline. “It was not,” he said.
He also said, “As I am a member of the Future Strategy Office, which plans the company’s business strategy, I thought about what kind of business synergy I could create with SM and what new value I could create.” “(Internally) there was a constant idea that IP-related capabilities needed to be strengthened,” he said. “The reason Kakao Entertainment reviewed IP companies like SM was to strengthen IP, including mega IP (influential IP),” he said.
At today’s trial, a battle between the prosecution and the defense continued over the central issue: the testimony of Lee Jun-ho, former head of Kakao Entertainment’s investment strategy division. Former division director Lee Jun-ho, who appeared as a witness at the previous trial, met with Chairman Ji of private equity fund One Asia Partners on February 10 last year (when SM’s Hive IPO began), connected the phone call between former CEO Bae Jae-hyun and Chairman Ji, and the two met on the spot. He testified that he overheard the phone call. Lee Jun-ho, former division head, said, “(In the phone call at that time), former CEO Bae asked Chairman Ji to buy about 100 billion won worth of SM stock,” and “Kakao promised to buy back the private equity fund’s shares in the future.”
In this regard, Kakao’s lawyer said that “(in the case of private equity funds) it is a very important issue how to make profits because they manage not only their own funds but also the funds of external investors,” adding: “Therefore, using such a large amount of funds without any review is a very important issue.” “It is something that cannot happen,” he said. Meanwhile, the next trial is scheduled for September 4.
/Reporter Jeong Yu-rim (2yclever@inews24.com)[관련기사]
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