[Exclusive] SK Moves to Acquire Electric Vehicle Charging Public Company 'Estraffic'

Electric Vehicle Expansion's Key Infrastructure 'Charging Station' Business and Value Chain Development for Profitability
M&A Aligned with Chairman Chey Tae-won's ESG (Environmental, Social, Governance) Management Strategy

[Asia Economy Reporter Lee Seon-ae] SK has launched an acquisition of Estraffic, a KOSDAQ-listed company actively engaged in the electric vehicle (EV) charging business.

According to the investment banking (IB) industry on the 24th, it has been confirmed that SK is pursuing the acquisition of Estraffic. SK and Estraffic are expected to sign a Non-Disclosure Agreement (NDA) soon.

The initial acquisition entity was SK Innovation. SK Innovation conducted due diligence by directly visiting Estraffic, located on Pangyo-ro in Bundang-gu, Seongnam City, over the past few months to acquire the company. Subsequently, an internal provisional decision to acquire was made, with only the final procedures remaining. At that time, the acquisition scale was estimated to be between 30 billion and 50 billion KRW. However, the ongoing 'battery lawsuit' with LG Energy Solution in the United States put a damper on the deal. LG Energy Solution acknowledged the trade secret infringement by SK Innovation and demanded over 3 trillion KRW as a settlement fee, which triggered an emergency regarding securing acquisition funds, causing issues with the payment of the capital stock. Thereafter, SK Innovation requested the holding company SK to directly execute the investment. Having received the due diligence results, SK is currently holding final internal meetings for the acquisition.

An IB industry official said, "In fact, SK Innovation had a strong intention to acquire Estraffic, leading to the signing of the NDA and even the signing of the contract. However, due to the settlement fee issue arising from the battery lawsuit with LG Energy Solution, problems occurred with the capital payment. Subsequently, SK Innovation requested the holding company SK to directly execute the investment. Although SK has not yet made a final acquisition decision, the market views the possibility of acquisition highly," he hinted.

The reason SK is eyeing Estraffic is to make a strategic move in the growing electric vehicle market. Estraffic is a company engaged in EV charging and autonomous vehicle platform businesses. The EV charging solution business, which started in 2017, has shown results by actively participating in government-led projects. In 2018, Estraffic was selected in the government's 'slow charger installation charging operator' contest and was subsequently chosen as an EV charging operator by the Ministry of Environment, Gyeonggi Province, and the Ministry of Trade, Industry and Energy, contributing to infrastructure development. Although a latecomer to this market, Estraffic rapidly expanded and built more than 1,400 chargers, the largest number among purely private operators. The EV charging business is conducted by establishing a 'smart grid system' operated remotely from the center. It uses Hi-Pass and Automatic Number Plate Recognition (ANPR) solutions to link easy authentication partnership cards. Estraffic is expanding charging stations by forming partnerships with companies that have nationwide networks such as E-Mart and BGF Retail. Leveraging its experience and know-how accumulated through its traffic system integration (SI) business, Estraffic is accelerating its autonomous vehicle platform construction business.

Accordingly, if SK acquires Estraffic, it can operate the most crucial charging station business for the expansion of the EV market and further build the EV business value chain (such as secondary battery production by 'SK Innovation' and EV charging operators like 'SK Energy'), enabling a stable business foundation. SK is focusing on the fact that automakers are successively announcing plans to expand EV production and has judged that the most important infrastructure for the spread of eco-friendly EVs is EV charging facilities. Moreover, Estraffic is already aligned with SK. In 2019, Estraffic signed a Memorandum of Understanding (MOU) with SK Energy, a subsidiary of SK Innovation, to promote eco-friendly energy businesses and has been pushing EV charging services at SK gas stations and Nate Truck House.

The acquisition also aligns with SK Group's ESG (Environmental, Social, and Governance) management strategy. SK Group Chairman Chey Tae-won has been actively ordering various mergers and acquisitions (M&A) to reorganize the business portfolio of affiliates for ESG management. The group has set a goal to become the world's number one hydrogen company by building a value chain from hydrogen production, distribution, to consumption through investments in hydrogen infrastructure and partnerships with global companies. In particular, besides constructing a production base capable of supplying 30,000 tons of liquefied hydrogen, the largest ever, SK plans to build 100 hydrogen charging stations nationwide by 2025 to supply 80,000 tons of liquefied hydrogen annually. Since Estraffic operates the largest number of EV charging stations and possesses facility technology, a successful acquisition is expected to boost SK's eco-friendly energy business. However, SK stated that it "has not reviewed" the matter, and Estraffic said it "has not discussed" it.

Meanwhile, the industry is showing great interest in the EV charging business. Hyundai Motor Company is pursuing the acquisition of Korea Electric Vehicle Charging Service. Large retail conglomerates such as Lotte, Shinsegae, and Hyundai Department Store are also reportedly discussing EV charging station businesses. Lotte is expected to proceed through Lotte Hi-Mart, Shinsegae through Shinsegae I&C, and Hyundai Department Store through Hyundai Futurenet in relation to EV charging station businesses.