Interlude: The Issue Over Stocks
Author’s note: This is part of a series of posts which details the conflict between HYBE and ADOR.
Since the clash between ADOR and HYBE spilled into public, one often overlooked factor is that, internally, it is largely about the qualms over stocks between HYBE and Min Hee Jin as ADOR’s CEO. Most of the mudslinging over social media has been about Min’s claim regarding ILLIT’s plagiarism, or the claim that Min consulted a shaman to make business decisions. However, a large chunk of it was really about financial issues. On one hand, while HYBE insisted over and over again that Min comes out much richer within the system in which she has more control as CEO compared to other label companies, Min, on the other hand, insisted that HYBE gave her a “slave contract” even if it comes with a hefty sum of money.
Given these as the main issues, who is in the right here? It is in the light of this question that I provide this bit of interlude about the quarrel over stocks between HYBE and Min Hee Jin. Consequently, it deals with some aspects regarding the financial success of NewJeans and how it affects and is affected by the issue between ADOR and HYBE.
Again, a reliable source on this matter would be TMIKPop, who not only reports and summarizes articles written in Korean but also provides a bit more context.
This rather complicated situation began in the first quarter of 2023, in which, as CEO of ADOR, HYBE granted Min the rights to purchase ADOR stocks at a discounted rate, having 18 percent of stock ownership (thus, literally a fifth of the company). Moreover, these stocks came at a discounted rate because they were merely existing stocks instead of being stock options.[1] HYBE owns 80 percent of ADOR, the latter being a subsidiary of the former, while the remaining 2 percent are owned by executives within ADOR.
There’s another reason for the low price that HYBE offers for the company, exclusively for Min. At the end of 2022, barely a year after NewJeans’ debut, the company already had a loss of KRW 3.2 billion, not to mention that the debut cost the company already KRW 4 billion. However, it was projected as temporary and can be recovered given the projected success of NewJeans after all the promotions and releases during that year.[2] Logic dictates that the value of these stocks would reap fourfold if in the following year, ADOR would harvest the fruits of its labor, which, as we have seen, grew fivefold by the end of 2023, largely greater than the market prediction (see the second footnote).
This is where things got complicated, because when the deal was struck between HYBE and Min, it came with certain terms. Min’s 18 percent is divided into two, based on how the stocks can be sold and distributed to others. A huge part of it — thirteen and a half to be exact — can be sold through a “put option”[3] to HYBE; under this, HYBE comes in as a buyer of the stock from Min within a certain price (or what the market calls the “strike price”); the remaining 4.5%, however, can be sold to other investors but only with the consent of HYBE.
Given this setup, Min renegotiates at the end of 2023, suggesting that the terms of the 4.5% be changed with regard to its restrictions (which are not revealed in details, except that Min thinks that ownership of these stocks basically come with a “slave contract,” requiring her to fulfill certain terms in order to obtain full ownership of those stocks);[4] HYBE, however, offers her a deal, suggesting that this small percentage be placed under a put option, and sell it back to HYBE at a different time.
Min, however, declined this offer, intending to keep the put option, but “on multiple.” In simpler terms, Min desires to have more freedom with her allocated stocks within ADOR, without needing the consent of HYBE to do something with it. This is so because as Min sees it, the value of the stock that she has at hand is still determined by HYBE, not to mention what to do with it and how to gain profit from it. It also seems that according to the stipulations of the contract, it may appear that HYBE’s control of the stock would still exist even after Min leaves the company after the period of her contract.
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This became the source of legal disputes that went back and forth from the end of 2023 up to the first quarter of 2024. On one hand, while Min’s legal representatives insist on removing the clause that restricts Min’s control over the stock (therefore allowing her to move and sell things at her will), HYBE on the other hand would push for the terms of the contract which allows them oversight of the stocks.
Min’s legal representatives, however, contested the provisions of this contract and negotiated for the clause that involved the terms that come with the 4.5%. According to them, the terms in the contract would force Min to work at HYBE for an unreasonably long period of time given her (limited) right and ownership over the stocks; unless she agrees to sell that small portion back to HYBE with their consent and under their terms, she is not allowed to work for another company. And if she does breach her contract, HYBE can use the “call option”[5] to buy back those shares at a much lower price than its possible value.
However, the negotiations came to a halt around March of the same year because HYBE allegedly came to know that Min has been meeting with other investors for a supposed takeover. This was the time when HYBE called for an audit of the company, and it is also during this time that the status of the remaining 4.5% was put in question, with HYBE doubting that Min would want to sell these stocks to outside investors and eventually allow other investors to take hold of her ADOR stocks.
As a conclusion, I believe some points can be drawn from this situation:
- This is primarily an issue of profit, with two sides having different bases for putting their claims forward. On one hand, Min Hee Jin thinks that with the given conditions of her contract, she ends up working solely for HYBE, making her unable to make other business ventures. On the other hand, HYBE insists that with all that is given to Min Hee Jin, she is basically earning more than other CEOs of other labels, within or outside HYBE. The value of the stocks that she has at hand skyrocketed to prime values, thanks to her efforts, but still, she has thirteen times more profit as the label CEO compared to the others. And now, she is basically fighting for twenty times more.
- What is not clear is whether the legal dispute that has been going on for months had something to do with allegations of the turnover, and hence the audit that HYBE does toward ADOR. On surface value, we see a connection, but this can be put into doubt. Min’s conversation with outside investors need not be a consequence of her demand to obtain complete control of stocks, unless there is some solid proof of not only a plan to stage a takeover of ADOR, but also the execution of such plans. Despite this, it would still be valid to say that the succession from one event ot another gives the impression that Min and her executives have been concocting a strange plan to detach ADOR from HYBE.
- This in turn begs the question: why? In the recent years, all HYBE companies have shown signs of success under the current system. Due to expansions made in Japan and the United States, HYBE labels and companies were able to enjoy huge market benefits and employ various strategies. Despite occasional drops in stock value, HYBE labels still continue to be popular (inarguably, most evident in this regard would still be Big Hit Music, which owns property and takes responsibility of managing BTS and its members, as well as Tomorrow x Together). What seems to be a manifested desire for ADOR to separate from HYBE would not make sense unless there is a compelling reason to do so that the public does not see, even if the publicity is directed towards their opinions. On one hand, while fans who side with HYBE on this matter would say that ambition fueled this plan all along, on the other hand, there would also be claims that Min and ADOR has time and again vied for greater share in promotion and participation under the label; this, however, has been denied by the company time and time again.
Whatever our speculations are beneath these facts, however, can only come to light and be measured with the results of the police investigation and the court injunction. This is left, however, to another discussion.
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[1] Basically, this means that Min has part ownership of the company and are committed to certain obligations and liabilities as such. This is the basic difference with having stock options, which are more fluid because it concerns “betting on” and estimating the projected value of stock prices in the course of time. Defined as investor contracts that can be bought and sold depending on preferred and projected stock prices, these are very fluid and can be easily exchanged for cash or other assets. As usual, both of these are taxable, and it so happened that the existing stocks during that time had lower taxes due to the fact that ADOR incurred a net loss and had a very low value as a company.
[2] By the end of the year 2023, ADOR’s net profit was at KRW 26.3 billion, considered as a great feat given that the label only handles one K-Pop group.
[3] Remaining with the vocabulary of options in the world investment, a put option is a contract which entitles the buyer of the stock to sell it at a determined price (called a “strike price”) within a certain deadline. In other words, it gives a certain fixed amount within a certain time which guarantees that the buyer of the stock is protected from major losses due to the reduction of stock value due to various factors. The downside of this, however, is that, since there is a determined price, it remains constant and has little effect in cases of increase in stock value.
[4] Part, if not the entirety, of the contract includes obliging Min to work exclusively for HYBE until the year 2029.
[5] A call option, on the other hand, is a contract that gives the right (and not the obligation) to buy a certain stock up until a certain time. In this case, what happens is that HYBE will exercise the right to buy Min’s stocks not at her preferred price, but theirs at a given expiration date. In other words, the exercise of such an option gives HYBE the decision and advantage over said stocks.
