SK approves merger of energy affiliates
Restructuring efforts gain momentum at Korea's third-largest conglomerate
By Nam Hyun-woo
SK Group’s energy units, SK Innovation and SK E&S, will merge as early as November to establish an energy titan whose 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 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.
Both companies are expected to hold their shareholder meetings late next month to vote on the merger plan. If approved, the merged entity will have annual sales of nearly 100 trillion won and will encompass a broad portfolio across the energy-related industry. Along with the merger plan, the SK Innovation board also approved merging SK Trading International, which handles oil and petrochemical product trading, and SK Enterm, which operates tank terminals, into SK On, to bolster the financial stability of the battery maker. Both SK Trading International and SK Enterm, fully owned by SK Innovation, have been generating stable revenues.
Another major element of the group's reorganization initiative is a concerted push into the eco-friendly energy sector. According to industry officials, SK Ecoplant, a construction, plant and green energy company, will hold a board meeting, Thursday, to approve its acquisition of Essencore, an SK unit manufacturing DRAM modules, USB and MicroSD from chips supplied by SK hynix, and SK Materials Airplus, which provides industrial gas for SK hynix’s chip manufacturing.
SK Corp., which controls the three firms, will also approve the acquisition at a board meeting slated for Thursday. SK Ecoplant was established as a builder, but has been focusing on waste battery recycling and renewable energy solutions in recent years. The company reported 8.9 trillion won in sales and 174.5 billion won in operating profit last year, but suffered a net loss of 33.6 billion won due to costs required for its transition into an eco-friendly technology firm. On the other hand, Essencore and SK Materials Airplus each achieved 59 billion won and 65.3 billion won in operating profit last year.
Since Essencore and SK Materials Airplus have been showing stable cash flow, the merger is viewed as the conglomerate’s efforts to enhance its eco-friendly business portfolio and improve the value of SK Ecoplant before its planned initial public offering in 2026. “This week’s board directions are in line with the group’s efforts to give its battery and green business firms enough power and time to withstand the current headwinds,” a senior SK Group official said, citing the present decline in global electric vehicle battery demand and the slowdown in industrial transition to green energy.
As SK Group’s portfolio rebalancing efforts gain momentum, there is growing interest in whether the mergers among its affiliates will effectively streamline the conglomerate’s complex subsidiary structure. According to the Fair Trade Commission, SK Group currently oversees 219 companies, while Samsung manages 63, Hyundai Motor Group controls 70, and LG has 60. The group official said the current reorganization efforts do not necessarily mean a reduced number of affiliates and subsidiaries, but that “a portfolio rebalancing will continue across the group.”