SKT Moves to Restructure Governance... Market Focuses on Treasury Stock Cancellation

Current 12% Treasury Shares
High Possibility of Cancellation
Concerns Over Media Criticism and Shareholders' Meeting Approval
Lower Merger Possibility Between SK㈜ and New Company

[Asia Economy Reporter Cha Min-young] SK Telecom announced on the 14th a plan for corporate governance restructuring with the goal of "enhancing shareholder value," drawing market attention to the possibility of treasury stock cancellation.

SK Telecom unveiled a long-awaited blueprint for corporate governance restructuring. The company will undergo a spin-off into an investment company and a mobile telecommunications business company, with the investment company becoming the intermediate holding company of the SK Group. Non-telecom affiliates, including SK Hynix, will become subsidiaries of the investment company, while telecom affiliates such as SK Broadband will be subsidiaries of the mobile telecommunications business company.

The market's primary focus is whether the company will cancel treasury stock, which accounts for a significant portion of total shares. Previously, in August last year, SK Telecom approved a plan to acquire 7.6 million shares of treasury stock worth 500 billion KRW. The plan aimed to raise the treasury stock ratio from the existing 9% range to the 12% range to enhance shareholder value. Since there was no clause about cancellation after acquisition, concerns were raised that during the spin-off process, the controlling shareholder's influence might increase and the shares could be used as a merger channel between SK Inc. and the investment company.

This is known as the so-called "magic of treasury stock" trick. It is a practice often seen in past corporate governance restructuring of large conglomerates, exploiting a loophole in the system where treasury stocks, which have no voting or dividend rights during a spin-off, are allocated shares of the newly established company. The controlling shareholder typically increases their stake in the new company through subsequent capital contributions and paid-in capital increases.

However, currently, securities analysts are predicting a high likelihood of SK Telecom canceling its treasury stock, which amounts to 12%. This is due to concerns over media criticism related to holding treasury stock and the analysis that canceling treasury stock would be more favorable for passing the agenda at the upcoming shareholders' meeting. Kim Hong-sik, a researcher at Hana Financial Investment, analyzed, "SK Telecom's management is likely to cancel the 12% treasury stock to avoid the stigma of the so-called magic of treasury stock."

In conjunction with this, the possibility of a merger between SK Inc. and the newly established company is also considered to have decreased. After canceling treasury stock, SK Group's stake in both SK Telecom's existing company and the new company will rise to 30.5%, and if a merger between SK Inc. and the new company proceeds, the major shareholder's stake would be diluted, posing a risk. Choi Nam-gon, a researcher at Yuanta Securities, also pointed out, "If treasury stock is canceled, the expected corporate governance structure will be maintained without additional restructuring after the spin-off," adding, "This effectively blocks the possibility of SK Group merging the new company."

If the treasury stock is canceled as expected by the securities market, it is anticipated to lead to a genuine enhancement of shareholder value. This would demonstrate SK Telecom's confirmation that "there is no possibility of a merger between SK Inc. and the new company," addressing shareholders' significant concerns about the merger of SK Group's new company through actual action.

SK Telecom stated in a disclosure the day before, "We plan to make decisions regarding the spin-off within the first half of the year." No specific positions regarding treasury stock cancellation or related matters have been disclosed yet.