SK Inno and E&S Merge... What Will Be the National Pension Service's Choice at Next Month's General Meeting?

Two-Thirds Approval Needed for Merger to Pass
National Pension Service Holds 6.2% of SK Inno and 7.6% of SK Corp Shares

The merger between SK Innovation and SK E&S is scheduled to be finalized at the extraordinary general meeting of shareholders on the 27th of next month. The success or failure of this merger depends on how shareholders are persuaded by then.

On the 17th, SK Innovation and SK E&S each held board meetings and approved the merger agenda between the two companies. If the merger plan is approved at the shareholders' meeting, the merged entity will be launched on November 1.

The merger ratio between the two companies is 1 to 1.1917417. According to this ratio, SK Innovation, a listed company, will issue new shares and deliver 49,769,267 shares to SK Inc., the shareholder of SK E&S. The new SK Innovation shares are scheduled to be listed on November 20, and after the merger, SK Inc., the largest shareholder of SK Innovation, is expected to increase its stake from 36.22% to 55.9%.

Initially, the market discussed a merger ratio of '1 to 2.' When SK E&S, an unlisted company, received an investment of approximately 3 trillion KRW in RCPS (Redeemable Convertible Preferred Shares) from KKR (Kohlberg Kravis Roberts), its corporate value was recognized at around 24 trillion KRW. SK Innovation's market capitalization had fallen to about 11 trillion KRW due to sluggish battery business performance. The '1 to 2' ratio reflected these figures.

However, this would lower SK Innovation's value, likely causing opposition from SK Innovation shareholders. In terms of asset size, SK Innovation is valued at 86 trillion KRW, while SK E&S is at 19 trillion KRW, showing a difference of more than 4 to 1.

On the other hand, it was difficult to undervalue SK E&S's corporate value. From KKR's perspective, if they opposed the merger and demanded early redemption of their investment, SK E&S would have no choice but to give up some of its valuable power generation subsidiaries. This is a situation SK Innovation wants to avoid.

The key interest lies in how many votes in favor of the merger can be gathered at next month's shareholders' meeting. For the merger agenda, which is a special resolution, to pass, at least two-thirds of the attending shareholders and one-third of the total issued shares must vote in favor.

SK Inc. holds a 36% stake in SK Innovation. SK Inc.'s related parties, including Chairman Chey Tae-won, hold about 25%. The National Pension Service holds 6.2% and 7.6% stakes in SK Innovation and SK Inc., respectively, making their stance on the merger highly anticipated. If the National Pension Service opposes the merger, it could influence not only major institutional investors but also the decision-making of minority shareholders.

Convincing SK Inc. shareholders is also crucial. SK Inc. plans to transfer its valuable subsidiary SK E&S to SK Innovation, and Essencore and SK Materials Airplus to SK Ecoplant, which is expected to provoke opposition from shareholders.