[Comprehensive] "Considering 60-40 Split Ratio" SKT to Separate Telecom and Holding Company for the First Time in 37 Years

[Image source=Yonhap News]

[Asia Economy reporters Seol Seul-gi-na and Cha Min-young] SK Telecom's move to split the company after 37 years since its establishment had been anticipated for some time. This is because the transition of SK Telecom into an intermediate holding company is the core of the restructuring process that will determine the future of the group. In particular, when Park Jung-ho, CEO of SK Telecom and considered the right-hand man of Chairman Chey Tae-won, was promoted to Vice Chairman of SK Hynix at the end of last year, there was a flood of speculation that the governance restructuring would be completed within the year.

Going forward, the surviving SK Telecom company is expected to focus on new businesses such as artificial intelligence (AI) based on telecommunications, while the newly established company will actively pursue domestic and overseas investments centered on semiconductors. The split ratio is being reviewed at approximately 6 to 4 based on assets, with the current surviving company holding 6 and the new company 4.

◆ SKT Chooses 'Shareholder-Friendly' Spin-Off, Split Ratio 6 to 4

The governance restructuring plan disclosed by SK Telecom on the 14th centers on a spin-off into the surviving company, the 'Artificial Intelligence (AI) & Digital Infrastructure Company,' and the newly established 'ICT Investment Specialist Company.' CEO Park explained this governance restructuring plan during a CEO town hall meeting held for employees immediately after the public announcement, stating, "The split ratio is expected to be about 6 to 4 based on assets, with the surviving company holding 6 and the new company 4."

Through this, SK Telecom aims to separate telecommunications and new growth areas, establishing management structures and investment bases suitable for each sector. This also signals a declaration to intensify investments in semiconductors and New ICT businesses. Currently, SK Group's governance structure flows from the owner family → SK Inc. → SK Telecom → SK Hynix. SK Hynix is effectively a grandchild company of SK Inc. However, if SK Telecom becomes an intermediate holding company and SK Inc. later merges with it, SK Hynix's status will change to a subsidiary, lifting the shackles that have so far hindered aggressive group-level investments and mergers and acquisitions (M&A).

Industry insiders expect that after the spin-off, CEO Park, who is also involved with SK Hynix, will lead the investment company, while Yoo Young-sang, head of the mobile network operator (MNO) business, will lead the operating company. Currently, CEO Park also serves as Vice Chairman of SK Hynix.

Initially, there was discussion both inside and outside the industry about a physical split into an investment company and an operating company, with the intermediate holding company (investment company) overseeing the operating company, SK Hynix, SK Broadband, and others. However, this year, the weight of opinion has shifted more toward a spin-off. SK Telecom explained, "The purpose of this spin-off is to have the telecommunications, semiconductor, and New ICT assets fully evaluated by the market to accelerate future growth and enhance shareholder value." Spin-offs are considered a shareholder-friendly method of division.

◆ Surviving Company to Focus on AI New Business, New Company to Intensify Semiconductor Investment

The surviving AI & Digital Infrastructure Company plans to have SK Broadband and others as subsidiaries and expand AI and digital new businesses based on its leadership in 5G. Previously, SK Telecom declared its transition to an AI company and positioned AI subscription services as a core strategy for its MNO business, which aligns with this plan.

Representative new businesses include cloud, data centers, and subscription services. AI technology will be expanded across all ICT sectors. Through this, the company plans to generate future profits in promising 5G industries based on stable cash flow and continue investing in innovative technologies such as AI and digital infrastructure.

The newly established company (ICT Investment Specialist Company), expected to create synergy with SK Hynix, will actively pursue domestic and overseas semiconductor investments. It plans to secure investment funds through dividends from subsidiaries including SK Hynix and through initial public offerings (IPOs).

SK Telecom emphasized, "More active investments are expected compared to when SK Hynix invested in Kioxia (formerly Toshiba Memory) and acquired Intel's NAND business division." This draws more attention to CEO Park's moves, who is known as a M&A strategist, having led the acquisition of the former Hynix during the semiconductor crisis.

Accordingly, the listing of New ICT subsidiaries such as ADT Caps, 11st, and T Map Mobility, which will be under the new company, is expected to gain more momentum. The strategy is to create a virtuous cycle of 'profit generation and reinvestment' by having subsidiaries highly valued.

In the securities industry, the total corporate value of new business subsidiaries is expected to exceed 20 trillion won. There are also forecasts that the combined value of the surviving and new companies after the split will reach about 30 trillion won.

"No Merger Plan Between New Company and SK Inc." Draws a Clear Line

On this day, SK Telecom denied rumors of a merger between the new company and SK Inc., stating, "There are no plans for a merger." Reflecting shareholders' concerns about a merger between the intermediate holding company and SK Inc., the company intends not to merge for the time being.

In this case, SK Hynix, which will be incorporated under the new company, will maintain its position as a 'grandchild company' for the time being. Under current Fair Trade Act regulations, grandchild companies are restricted to acquiring companies only in the form of 100% equity ownership. Additionally, joint venture establishment is blocked, which inevitably limits business expansion. However, since the ICT Investment Specialist Company can invest directly, there should be no problem with semiconductor business investments.

This decision is seen as being mindful of shareholders. Kim Hong-sik, a researcher at Hana Financial Investment, diagnosed, "Significant noise arises over concerns about a merger with SK Inc. during a spin-off, and it is uncertain whether the shareholders' meeting will pass it." Earlier, concerns were raised at the shareholders' meeting that a merger could suppress the new company's stock price to avoid diluting the major shareholder's stake, and CEO Park drew a clear line by saying, "There will be no damage to shareholder value."

◆ Split to be Completed Within the Year... SK Telecom to Change Its Name

SK Telecom plans to complete the split within the year after going through all necessary procedures such as board approval and shareholders' meetings. Along with this, a new company name reflecting future-oriented corporate value is being prepared.

The name change of SK Telecom is seen as the final piece in the transition to an intermediate holding company and an official declaration as a New ICT comprehensive company. It is tantamount to shedding the 'telecom company' label and declaring its intention to leap forward as an ICT comprehensive company standing shoulder to shoulder with global big tech companies like Google and SoftBank.

Under the new name, SK Telecom is expected to maximize its competitiveness in the Fourth Industrial Revolution based on a platform that encompasses mobility, artificial intelligence (AI), big data, and 5G mobile communications, leveraging the big data accumulated from its single subscriber base in the telecommunications business.

CEO Park, who had previously revealed preparations for a corporate identity (CI) change, personally proposed various name ideas such as 'Hyper Connector,' 'T Square,' and 'T Mo,' while gathering opinions from employees.

At the CEO town hall meeting on this day, CEO Park emphasized, "It is time for the assets of SK Telecom, which have been well nurtured through the efforts of our members, to be fully evaluated and to move toward a better future," adding, "Even after the split, let's create companies that continue to grow according to each company's direction."