SK Group’s energy units, SK Innovation and SK E&S, will merge as early as November to establish an energy titan whos combined assets are projected to surpass 100 trillion won ($72.3 billion) in value.
The merger will initiate a wave of further mergers and business restructuring efforts within Korea’s third-largest conglomerate, which oversees over 200 subsidiaries and affiliates. These changes aim to enhance the group’s competitiveness in battery and eco-friendly technologies.
The boards of SK Innovation and SK E&S met on Wednesday and approved their merger, setting an exchange ratio of 1.2 SK Innovation shares for each SK E&S share.
SK Innovation is the group’s intermediate holding company, overseeing nine subsidiaries involved in battery technology, refining, and petrochemicals, including the rechargeable battery maker SK On.
SK E&S is an energy company specializing in liquefied natural gas and renewable energy. In recent years, the firm has achieved stable earnings, reporting 11.2 trillion won in sales and 1.33 trillion won in operating profit last year.
Against this backdrop, the merger is seen as a strategic move to leverage SK E&S’s profitability to support SK On, helping to offset the 581.8 billion won operating loss it faced last year and manage the rising costs associated with its global battery production expansion.
Following Wednesday’s decisions, SK Corp., the holding company with the largest stakes in both SK Innovation and SK E&S, will hold a board meeting 커뮤니티 on Thursday to apparently approve the merger. Should the merger plan be approved in the shareholder meetings of each company, SK Corp. is projected to hold up to 56 percent of the shares in the newly formed company
Initially, there was significant controversy over the merger ratio, because SK E&S’s shares are unlisted. Minor investors in SK Innovation argued that the market assumption of exchanging two SK Innovation shares for one SK E&S share is unfair and disadvantageous to them.
The boards of the companies have reportedly decided to assign a higher value to SK Innovation shares to address these controversies. However, the move could potentially provoke a backlash among SK E&S shareholders.
Currently, private equity firm KKR holds 3.14 trillion won worth of redeemable convertible preferred shares in SK E&S. KKR has the right to demand that SK E&S redeem those shares for cash if it is dissatisfied with the merger ratio. As a result, there are uncertainties about whether the merger plan will proceed without causing disputes between SK Group and KKR.