The conflict between HYBE and its subsidiary ADOR’s CEO, Min Hee-jin, reportedly stemmed from stock options. When the record label was established, HYBE granted stock options to Min, but she claimed that they were too few and that the high tax rates significantly reduced the actual benefits. As a compromise, HYBE proposed selling shares to her at a low price instead of granting additional stock options. But the measure did not fully resolve the conflict.
According to the investment banking industry on April 23, since ADOR’s establishment in 2021, Min held stock options accounting for 15% of the company’s total shares.
However, she argued that this stake was excessively low given her contributions to the success of the girl group NewJeans, leading HYBE to grant her additional stock options in 2022. These new options reportedly approached a 20% stake when converted to shares.
Even the additional stock options were not a satisfactory solution for Min. The profits from exercising the stock options are subject to comprehensive income taxes, with the progressive tax rate nearing 45%. From her perspective, nearly half of the profit would be lost to taxes. In response, HYBE canceled the stock option grant early last year and resolved by its board to sell shares to Min at a low price.
As a result, Min became the second-largest shareholder, holding an 18% stake (573,160 shares) in HYBE. The largest shareholder is HYBE itself, with an 80% stake. Min also holds a put option on the stock, meaning she has the right to sell her shares back to HYBE in the future. If ADOR’s corporate value reaches 1 trillion won, Min could potentially earn 200 billion won by selling her shares.
HYBE was able to sell the shares to Min at a low price because ADOR had been a loss-making company until the year before last. In 2022, ADOR recorded an operating loss of 4 billion won, and a net loss of 3.2 billion won. For unlisted stocks, there is no explicit legal regulation on valuation methods. The general practice is to assess the market value according to the Inheritance Tax and Gift Tax Act, which considers net asset value and net profit.
NewJeans debuted in August 2022. The stock sale between the parties took place early last year. From HYBE’s perspective, they had sold shares whose value would rapidly increase in the future at a bargain based on the 2022 performance to appease Min.
However, HYBE’s efforts were unsuccessful. Earlier this year, HYBE received a tip-off that “Min had colluded with a private equity fund (PEF) manager to devise a plan to take over the company.” HYBE reportedly tried to resolve the issue quietly with Min. “Unable to resolve the conflict, in March, ILLIT debuted with a concept similar to NewJeans, which Min probably saw as a good pretext,” said an entertainment industry insider.
Min later persuaded the parents of the NewJeans members. The ADOR CEO on April 22 said, “After thorough discussions with NewJeans members and their legal representatives, I am making this announcement,” emphasizing that the members are with her.
This article was originally published on April 23, 2024.
