SK Innovation and SK E&S Merger Over the First Gateway... 95% of Foreign Shareholders Agree

[Korea Financial Times, Gwak Horyung] The proposed merger of SK Innovation and SK E&S has crossed the threshold of the shareholders' meeting. While the financial crisis at SK On is not completely resolved, it is positive to see that the majority of shareholders are in favor of the company's management plan.


SK Innovation announced that the proposal to approve the merger agreement with SK E&S at the extraordinary general meeting of shareholders on the 27th was passed by 85.75% of the shareholders present.
SK Innovation is comprised of 36.2 percent majority shareholders including SK Co., Ltd., and 6.2 percent of the second largest shareholder, the National Pension Service and 53.5 percent minority shareholders. Except for the National Pension Service, which announced that it will vote against the merger proposal, it received approval from most institutional and individual investors.

In particular, 95 percent of foreign shareholders attending the meeting voted in favor. Foreign investors account for about 21% of SK Innovation's total shares.

This can be explained by the fact that ISS and Glass Lewis, two of the world's largest proxy advisory firms, recommended in favor of the merger. Foreign investors tend to follow the opinions of these organizations.

ISS and Glass Lewis have recommended in favor of the merger because they believe that SK Innovation's management's reasons for the merger, such as financial stabilization and increasing future corporate value, are well-founded. They did not take issue with the “damage of shareholder value” due to the merger ratio set at the reference price, which was criticized by the National Pension Service and some minority shareholders.


Earlier, SK Innovation announced that the merger synergy effect will generate more than KRW 2.2 trillion in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as of 2030. Based on this, SK Innovation President Park Sang-kyu stressed, "We will make a leap into a comprehensive energy company worth KRW 20 trillion in EBITDA in 2030."
SK Innovation's financial stabilization is repeatedly mentioned because of its battery subsidiary, SK On. While SK On is struggling with accumulating deficits due to large-scale investments and short-term business uncertainty due to the EV chasm, its parent company SK Innovation is also under financial pressure. SK E&S is one of the group's strongest privately held companies, with annual operating income of more than 1 trillion won.

The merger of the two companies is scheduled for Nov. 1. If successfully launched, the combined entity will be the largest private energy company in the Asia-Pacific region with assets of KRW 100 trillion and sales of KRW 88 trillion.

Even though the merger has passed the shareholders' meeting, SK is not completely at peace. The exercise of the stock purchase right scheduled until the 19th of next month remains. This is the right of shareholders to demand that the company buy their shares after the merger is approved. If the amount of the exercise exceeds the limit set by SK (800 billion won), the merger could be scuttled. Although it is considered unlikely, it is also in the spotlight whether the National Pension Service, which voted against the merger, will exercise its claim. The National Pension Service's stake in SK Innovation is valued at around 650 billion won. For SK Innovation's management, the challenge is to boost the stock price, which is below the amount of the claim exercise (111,943 won).

he launch of the combined entity in November will not solve the core of the problem. The merger is a way out of SK On's poor performance.

Apart from the SK Innovation-SK E&S merger, SK On is scheduled to merge with SK Trading International and SK Enterm. It is a measure to improve SK On's cash flow, but it is not a fundamental solution.

SK On raised funds through a pre-IPO and promised investors an IPO in 2026. At the time of listing, the company has a valuation target of 100 trillion won, three times its current valuation. To achieve the goal, the battery sector's sales performance itself will need to be boosted.

Gwak Horyung (horr@fntimes.com)