NPS to veto SK Innovation’s merger with LNG affiliate
Byeong-Hwa Ryu and Sang Hoon Sung
4 HOURS AGO
SK Innovation headquarters in Seoul (File photo by Dae-chul Lim) South Korea’s National Pension Service (NPS), manager of the world’s third-largest public pension fund, said on Thursday it is set to veto SK Innovation Co.'s plan to merge with its liquefied natural gas (LNG) affiliate in a move to jeopardize the country’s second-largest conglomerate SK Group’s restructuring efforts.
The NPS, SK Innovation’s second-largest shareholder with a 6.21% stake, decided to reject the combination plan at the company’s extraordinary shareholder meeting on Aug. 27, saying its merger with the unlisted SK E&S Co. is expected to hurt the shareholder value of SK Innovation.
SK Innovation and SK E&S set the ratio of their merger at 1 to 1.1917417, defying expectations of the ratio of 1 to 2. SK Group may have undervalued SK E&S in consideration of potential opposition from SK Innovation shareholders, some analysts said.
The NPS said the merger ratio is likely to dilute SK Innovation’s shareholder value. Seoul-based proxy adviser Sustinvest urged institutional investors to veto the merger plan as the ratio is expected to damage individual shareholders.
OTHERS MAY JOIN THE MOVE
The NPS’ decision is expected to cause other institutional investors to reject the merger as many of them usually follow the pension manager’s moves.
“Once the NPS vetoes the merger, other institutional investors are likely to exercise their voting rights in line with the move,” said a financial investment industry source. “It will be a key to win approval from foreign investors at the shareholder meeting.”
The NPS’ objection may have an impact on shareholders’ appraisal rights exercises, industry sources said.
SK Innovation is poised to set aside 800 billion won ($597.3 million) to buy its stocks from shareholders if their prices fall below 111,943 won per share. On Friday, SK Innovation shares lost as much as 2.7% to 103,300 won.
The merger could fail if the costs for the appraisal rights exercise top the SK Innovation fund. The company may have to spend 650 billion won if the NPS decides to exercise the rights for all of its SK Innovation shares.
SK Innovation refinery complex in Ulsan, South Korea (File photo) NEEDS TO CONSIDER LONG-TERM GROWTH
The NPS may have decided to object to the merger for short-term interests, hindering the long-term growth of SK Group, some asset management industry sources said.
“The NPS is the second-largest shareholder of SK Inc., the parent of SK Innovation,” said the head of an asset manager. “It did not make a comprehensive decision although it must consider the long-term business as a major shareholder of SK Inc.”
The pension manager holds a 7.44% stake in SK Inc., the group’s holding company, which has a 36.22% stake in SK Innovation.
The country’s top energy company aims to become the industry leader in Asia through the merger while improving its financial structure, which was mired by support to its sluggish electric vehicle battery unit – SK On Co.
Global proxy advisers Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. urged shareholders to approve the mergers saying risks of SK Innovation’s refining business could be hedged with SK E&S’ LNG business.
“SK Group’s business restructuring is an important move, which can impact various sectors,” said an investment banking industry source. “I am concerned that the NPS may have decided to veto the merger for short-term profits.”