SK Innovation-SK E&S merger gains shareholders’ nod

SK Innovation Co., South Korea’s largest energy company, has won majority support from its shareholders for a merger with its liquefied natural gas (LNG) affiliate SK E&S Co., a move that is expected to create the biggest energy company by assets in the Asia Pacific region.

The company is confident that the merger will be completed as planned since it has enough cash to compensate shareholders who would ask it to purchase their shares in opposition to the merger, its chief said on Tuesday.

SK Innovation held an extraordinary general meeting of shareholders on Tuesday morning to vote on its consolidation with unlisted sister company SK E&S and won approval from more than 85% of the shareholders attending the meeting, the company announced.

That includes full support from the company’s biggest shareholder SK Inc., with a 36.2% stake.

The majority consent comes amid opposition from the company’s second-largest shareholder, the National Pension Service (NPS),which holds a 6.2% stake.

The merger plan also gained the nod from 95% of foreign shareholders after it earned strong backing from global proxy advisory agencies Institutional Shareholder Service (ISS) and Glass Lewis & Co., which expect the union to enhance financial stability, create business synergies and mitigate global economic uncertainties.

On the same day, a majority of SK E&S shareholders also voted for the merger.

The new entity, a merger between SK Innovation and SK E&S in a ratio of 1 to 1.1917417, respectively, will be launched on Nov. 1.

BUSINESS SYNERGY AND FINANCIAL STABILITY

The consolidation is expected to create a 100 trillion won ($75 billion) asset company, the largest for an energy company in the Asia Pacific region, with sales of 88 trillion won, according to SK Innovation.

Following the merger, SK Innovation is expected to diversify its energy portfolio by adding SK E&S’s LNG and renewable energy businesses to its existing petrochemical and battery businesses, a move expected to enable SK Innovation to offer energy packages catering to different needs in the global energy market.

SK Group Chairman Chey Tae-won last month urged the two energy affiliates to join hands to come up with energy products that can support the artificial intelligence transition. He foresaw immense growth potential in the new energy sources needed to run AI data centers.

The marriage is also expected to allow SK Innovation to improve its financial health with more stable profit-making businesses.

SK Innovation and SK E&S directors approved the plan to merge last month as part of efforts to shore up the financial soundness of SK Innovation’s loss-making battery unit SK On Co.

SK On, Korea’s second-largest battery maker, has never generated a profit since being split off from SK Innovation in late 2021 as a subsidiary. Moreover, the prolonged slump in the global electric vehicle market has taken a toll on the Korean battery maker.

SK Innovation is the parent of the battery maker and Korea’s top oil refiner SK Energy Co.

SK E&S operates businesses ranging from profitable city gas utilities to LNG power generation units. In 2023, it reported 1.3 trillion won in operating profit on sales of 11.2 trillion won in sales. 

Its LNG business is projected to offset its oil refining sibling company’s business downturn.

SK Innovation reported 1.9 trillion won in consolidated operating profit on sales of 77.3 trillion won last year.

ONE MORE HURDLE TO OVERCOME

To complete the merger, SK Innovation must overcome one last hurdle — the exercise of appraisal rights by shareholders opposing the marriage.

Under the law, existing shareholders who oppose a merger or acquisition must notify the company of their opinion before a shareholders’ meeting so they can ask the company to buy back their shares at a fair stock value within 20 days of the meeting.

SK Innovation and SK E&S have agreed to cancel or change conditions for their consolidation move if the total amount of the appraisal rights exercise exceeds 800 billion won.

The number of shares opposed to the merger exceeded 8.2 million, according to the voting result on Tuesday. Based on the company’s offered stock price of 111,943 won per share for its buyback, the company must spend 922.9 billion won if all shareholders opposed to the merger ask SK Innovation for share purchases.

If the NPS decides to exercise its appraisal rights for its entire 6.2% stake in SK Innovation, the latter must pay the NPS 681.7 billion won.

SK Innovation said it has set aside 800 billion won to buy shares from shareholders. It currently has cash and cash equivalents worth about 1.4 trillion won.

“The company (SK Innovation) will go all-out to complete the merger, which is expected to pave the way for its long-term stability and growth,” SK Innovation CEO Park Sang-kyu said after Tuesday's meeting.

“The company will strive to meet shareholders’ expectations for profit generation with the synergies expected to be created from the merger.”

SK Innovation shares ended up 3.1% at 109,800 won on Tuesday. SK shares added 1.5% to close at 146,200 won.

Write to Sang Hoon Sung at uphoon@hankyung.com
Sookyung Seo edited this article.