SK Innovation shuffles affiliates to cope with EV slump, lead future energy sector

SK Innovation on Thursday vowed to create synergy and lead the global energy sector through the realignment of its affiliates by merging itself with SK E&S and amalgamating battery-maker SK On with SK Trading International and SK Enterm.

“We decided the merger with SK E&S to lay the groundwork for the growth of future energy businesses and push for a bold, structural innovation,” said Park Sang-kyu, CEO of SK Innovation, in a press conference at the SK Seorin Building in Seoul.

“Looking ahead to the next five to 10 years, we pushed for this merger and judged that combining the capabilities of the two companies will allow us to become a big energy company in the global market.”

SK Innovation and SK E&S each held board meetings on the previous day to approve the merger plan. The decision came as one of SK Group’s business rebalancing efforts it has continued to pursue to strengthen the conglomerate’s fundamental competitiveness.

If the merger is approved at the shareholders meeting slated for Aug. 27, the combined entity, which is expected to boast a total asset value of 100 trillion won ($72 billion) as well as annual sales of 88 trillion won, will officially be launched Nov. 1 and become the biggest energy company in the Asia-Pacific region, according to SK Innovation.

The merger ratio between SK Innovation and SK E&S has been measured at 1 to 1.2, based on each firm’s value. Under this, the Kospi-listed SK Innovation will issue nearly 50 million merged shares and hand them over to SK Inc., the conglomerate’s holdings company that holds a 90 percent stake in SK E&S. After the merger, SK Inc., which is the largest shareholder of SK Innovation, is projected to see its stake in SK Innovation increase from the current 36.22 percent to 55.9 percent.

SK Innovation CEO Park highlighted that SK Innovation’s traditional petrochemicals businesses along with its battery affiliate SK On’s electric vehicle battery and energy storage system businesses and SK E&S’ businesses in liquefied natural gas, hydrogen, power generation, renewable energy and energy solutions will cover all key areas in the current and future energy sectors, so the merged company will be able to lead Korea’s energy industry.

The CEO pointed out that SK Innovation’s horizontal combination with SK E&S, whereby they will keep their respective business portfolios, will increase the combined annual earnings before interest, tax, depreciation and amortization, or EBITDA, by 1.9 trillion won to 5.8 trillion won and bolster the financial structure by being able to mitigate the petrochemicals business’s high volatility in profits with the stable businesses of LNG, power generation and town gas.

SK On, SK Trading International and SK Enterm also held separate board meetings on Wednesday and approved the merger between them, as SK Innovation seeks to back up its battery-making affiliate that has turned in losses for 10 straight months.

SK Innovation said the merger will provide opportunities for SK Trading International, an oil brokerage company, to enter the trading market in EV-related minerals such as lithium and nickel while adding the storage capabilities of SK Enterm, a tank terminal company, to expand the former’s trading businesses.

“Based on the 500 billion won annual EBITDA generated from the trading and tank terminal businesses, SK On will bolster the battery business’s sustainability and firmly find its footing in the global EV market in the future,” said Park.