SK Innovation, the parent company of SK On, announced plans on Wednesday to merge with energy affiliate SK E&S. This merger aims to create a powerhouse in the energy sector, with combined assets expected to exceed 100 trillion won ($72.57 billion).
With over 200 subsidiaries under its umbrella, SK Group intends to leverage this merger to streamline operations and strengthen its position in the evolving energy landscape.
SK Innovation has highlighted the anticipated benefits of the merger, stating in a regulatory filing that it expects the integration to enhance its mid-to-long-term energy operations’ profitability and financial structures.
The strategic combination aims to capitalize on SK E&S’s successful business segments, which include lucrative city gas utilities and LNG power generation units. In 2023 alone, SK E&S reported an operating profit of 1.3 trillion won ($939.37 million) from its total sales of 11.2 trillion won.
Meanwhile, SK On, the battery-making arm of SK Innovation, has struggled financially since its inception in late 2021. It consistently reports losses exacerbated by a decline in electric vehicle battery shipments amidst a global slowdown in EV sales. Therefore, the merger with SK E&S is seen as a critical move to leverage the latter’s profitability to strengthen SK On’s financial position and offset its operating losses, which amounted to 581.8 billion won last year.
The boards of SK Innovation and SK E&S convened on Wednesday and unanimously approved the merger, establishing an exchange ratio of 1.2 SK Innovation shares for each SK E&S share. SK Innovation, the intermediate holding company within SK Group overseeing nine subsidiaries in battery technology, refining, and petrochemicals, is set to absorb SK E&S, which specializes in LNG and renewable energy.
Following these approvals, SK Corp., the primary holding company with substantial stakes in both entities, is scheduled to convene on Thursday to finalize its endorsement of the merger. Upon shareholder approval, SK Corp. plans to hold approximately 56 percent of the shares in the newly formed entity.
Following the approvals from SK Innovation and SK E&S boards for their merger, both companies are now set to convene shareholder meetings next month to finalize the merger plan.
The proposed merger aims to create a powerhouse with nearly 100 trillion won in annual sales, encompassing a diverse portfolio within the energy sector. Alongside this consolidation, SK Innovation’s board also greenlit the integration of SK Trading International and SK Enterm into SK On, aimed at fortifying the financial stability of its struggling battery subsidiary.
As SK Group undertakes these reorganization initiatives, attention is focused on whether these mergers will effectively streamline the conglomerate’s intricate subsidiary structure. Currently overseeing 219 companies, SK Group’s efforts towards portfolio rebalancing to optimize operational efficiency and financial performance across its diverse business segments.
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