Financial authorities oppose restructuring of SK, Doosan

SK Group's headquarters in Seoul is seen in this undated photo. Korea Times file

The government has indicated its opposition to merger plans proposed by SK and Doosan.

The plans have been viewed as harmful to the Yoon Suk Yeol administration’s efforts to attract retail investors and stimulate the domestic capital market. As a result, the conglomerates are facing increasing pressure from the state pension fund and financial watchdog to abandon their corporate governance restructuring drives.

The National Pension Service (NPS) decided to vote against the merger of SK Innovation and SK E&S during an extraordinary general meeting of the battery and chemical unit's shareholders next Tuesday. SK E&S is involved in renewable energy.

Its stance sharply contrasted with the position of foreign pension funds such as the California Public Employees' Retirement System and the California State Teachers' Retirement System, which followed global proxy advisers — Institutional Shareholder Services and Glass Lewis — in supporting the merger of SK Group’s two energy affiliates.

The NPS cited concerns about destroying shareholder value as the reason for its opposition.

Such a view was shared by Sustinvest, a minor proxy adviser in Korea, and the Korean Corporate Governance Forum, which consists of capital market insiders and legal experts who seek to improve corporate governance at Korean companies.

They argued that the proposed merger ratio between SK Innovation and SK E&S is unfair to the battery and chemical unit's minority shareholders, despite the company’s explanation that current regulations mandate that the exchange ratio for mergers involving listed companies be based on market value rather than book value.

Although the NPS holds a 6.2 percent stake in SK Innovation, making it the second-largest shareholder, the proposed merger is expected to be approved due to the support of SK Inc., the largest shareholder with a 36.2 percent stake, and foreign investors who are following the recommendations of global proxy advisers.

However, the NPS could exercise its appraisal rights, which may force SK Group to pay up to 665 billion won ($497 million) — 83 percent of the 800 billion won that the conglomerate set aside for the appraisal rights.

“Despite the fact that SK Inc. has the controlling ownership of SK Innovation and SK E&S, if the NPS exercises its appraisal rights, this could put a knife in the wheel of the merger between SK Innovation and SK E&S,” said Douglas Kim, an analyst at SmartKarma, a Singapore-based investment research firm.

Speculation is increasing that the NPS may block Doosan’s plan to merge its profitable construction equipment maker, Doosan Bobcat, with its struggling robotics firm, Doosan Robotics. This speculation follows a series of recent comments from Financial Supervisory Service (FSS) Gov. Lee Bok-hyun denouncing the merger plan.

If the NPS exercises its appraisal rights, Doosan Enerbility, the current parent firm of Doosan Bobcat, will need to pay over 600 billion won — the amount set aside for the appraisal rights.

SK and Doosan, however, have continued efforts to persuade general shareholders to support their merger plans.

“We will continue to communicate with our stakeholders through various channels,” an SK Innovation official said.

Doosan corrected its prospectus on the merger plan twice upon the requests of the FSS.

The CEOs of Doosan’s affiliates also sent letters to shareholders earlier this month to gain their support.