Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
SK strengthens energy portfolio by merging SK Innovation, SK E&S
SK Innovation CEO Park Sang-kyu speaks during a shareholders' meeting to decide on its merger with SK E&S, at SK Group headquarters in Seoul, Tuesday. Courtesy of SK Innovation
By Lee Min-hyung
Combined entity will become largest private energy firm in Asia-Pacific region
SK Innovation shareholders approved the firm's high-profile merger with SK E&S in a landslide vote of 85.75 percent on Tuesday, paving the way for the launch of a mega-sized energy company.
The combined entity will start its operation on Nov. 1, according to the result of the recent shareholders' meeting.
The asset value of the merged company is estimated to reach 100 trillion won ($75.17 billion), with its annual sales forecast to top 88 trillion won. This is the largest among any private energy firms headquartered in the Asia-Pacific region.
SK Group expects the latest merger to generate more synergies for its diverse energy businesses, thereby helping the company stabilize financial soundness and enhance profitability. SK Innovation operates petrochemical and battery businesses, while SK E&S focuses on liquefied natural gas (LNG) and renewable energy sectors.
An overwhelming majority of shareholders voted in favor of the proposed merger. But as was widely expected, the National Pension Service (NPS), the second-largest shareholder of SK Innovation, opposed the merger. The state pension fund secured a 6.2 percent stake in SK Innovation as of the end of June. SK Inc. is the largest shareholder, with a stake of 36.2 percent in the company.
A sign shows the location of SK Innovation's shareholders' meeting at SK Group's headquarters in Seoul, Tuesday. Shareholders of SK Innovation approved the firm's proposed merger with SK E&S. Yonhap
The NPS has opposed the merger of the two firms, citing potential risks to shareholder value.
"SK Innovation will proactively review and conduct diverse shareholder-friendly policies after completing the merger," SK Innovation CEO Park Sang-kyu said. "We will also do our best to smoothly finalize the merger which will serve as a stepping stone for stable growth of the company from a longer-term perspective."
SK Innovation and SK E&S chalked up an operating profit of 1.9 trillion won and 1.33 trillion won, respectively, in 2023. SK E&S is considered one of the core unlisted subsidiaries of SK Group, as the company generates stable revenues. The company is expected to achieve an annual operating profit of more than 1 trillion won for three consecutive years until 2024.
Shareholders line up to enter a shareholders' meeting of SK Innovation at SK Group headquarters in Seoul, Tuesday. Yonhap
Earlier, SK Innovation and SK E&S proposed the merger, calling for the urgent need to ensure their profitable and stable growth amid growing business risks posed by prolonged high interest rates and demand slowdown.
All eyes are on whether the NPS will exercise its right to demand the purchase of its shares. Shareholders opposing the merger are entitled to sell the shares to SK Innovation until Sept. 19. If shareholders who voted against the merger plan exercise the right, SK Innovation should purchase their shares worth 920 billion won.
But the SK Innovation chief displayed confidence in the firm's ability to finalize the race for the merger, citing its cash reserves of more than 1 trillion won.
"Our cash reserves reach around 1.4 trillion won, so we can handle the scenario," Park said.
Park apologized for failing to rev up the firm's stock growth.
"We would like to convey our apologies that our current stock price has not reached a level of last year," he said. "But we will take diverse factors into consideration to push ahead with shareholder-friendly policies and build a mid- to long-term plan to give back to our shareholders. SK Innovation believes we can operate a stable business in the mid- to long-term by setting up a balanced portfolio not just in the petrochemical business but LNG and batteries after launching the combined entity."