December 22, 2024

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SK Innovation CEO Park Sang-kyu speaks at a shareholders' meeting at the company headquarters in Seoul, Tuesday. (SK Innovation)

SK Innovation and SK E&S, two major energy affiliates of the country's second-largest conglomerate SK Group, received shareholders’ approval for their merger on Monday, paving the way for the launch of an integrated entity with assets over 100 trillion won ($75 billion).

During the extraordinary general shareholders' meetings separately held by the two companies, 85.76 percent of the shareholders that attended the meeting of SK Innovation voted in favor of the merger. The majority of shareholder attendees at SK E&S, an unlisted company, agreed with the plan as well.

Under the scheme, the two companies will merge into an integrated energy company with combined assets of over 106 trillion won and annual sales of 88 trillion won, according to SK Innovation. It will be set for an official launch on Nov. 1.

The merged entity will be the biggest private energy company in the Asia-Pacific region, integrating SK Innovation's petroleum and battery business with SK E&S' renewable energy business, the company said. The energy portfolio will span from petroleum, liquefied natural gas, solar energy and hydrogen, to wind power and small modular reactors.

The integration is part of SK Group’s rebalancing efforts, as the country’s chip-to-energy conglomerate executes a massive reshuffle, streamlining its affiliates to focus on future growth drivers and enhance operational efficiency.

Through the merger, SK Innovation is expected to back up SK On, its battery-making affiliate in need of cash, as well. The battery unit has been logging operating losses for 11 consecutive quarters amid the slowdown of the global electric vehicle market.

“The energy industry is facing new challenges, different from the past. Uncertainties have increased due to high interest rates and prolonged inflation since 2022,” SK Innovation CEO Park Sang-kyu said at the shareholders’ meeting.

“To respond to uncertainties and establish the foothold of growth, we have decided to merge with SK E&S,” Park said. “With growth in size and competitiveness, we will continue to expand as the top energy company, in not just the Asia-Pacific region but the world.”

The merger with SK E&S will bring an additional 2.2 trillion won in earnings before interest, tax, depreciation and amortization, also known as EBITDA, for SK Innovation, making the metric surge to 20 trillion won by 2030, the company said.

Though the National Pension Service, the second largest shareholder of SK Innovation with a 6.36 percent stake, decided to vote against the merger, citing shareholder values, the merger was pushed through.

The pension fund viewed the merger ratio of SK Innovation and SK E&S, set at 1 to 1.1917417, as unfair to SK Innovation shareholders.

The NPS’ opposition was expected to have a limited effect on the merger plan as SK Inc., the group’s holdings company, owns a 36.2 percent stake in SK Innovation.

Yet, shareholders’ appraisal rights remain a hurdle for the merger. Shareholders who disagree with the merger, including the state-run pension fund, can exercise their appraisal rights to demand the companies purchase their shares until Sept. 19.

If the NPS exercises its appraisal rights for the entire stake it owns in SK Innovation, the company will be required to pay out 681.7 billion won. The amount draws near to the 800 billion won allocated by SK Innovation for the cause.

Other minority shareholders who voted against the merger could exercise their rights if the share price of SK Innovation drops during the period. The standard price for appraisal rights is set at 111,943 won. The stock price has been fluctuating around 109,400 won as of 2:25 p.m. Tuesday.

Park stressed the company can handle the exertion of appraisal rights, even above the allocated 800 billion won.

“SK innovation holds cash over 1.4 trillion won. The appraisal rights are not at a level that cannot be handled,” he said. "We expect the exertion of appraisal rights would not surpass the anticipated level."

By Im Eun-byel (silverstar@heraldcorp.com)