All-Out Effort to Save SK On... Birth of a 100 Trillion Won Energy Giant (Comprehensive)

SK Inno-SK E&S Merger Approved by Board
SK Corp Expands SK Inno Stake to 55.9%

Portfolio Covering Oil, LNG, and Batteries
Financial Structure Improvement Expected

SK On Merger Plan Also Resolved at Same Board Meeting

SK Innovation and SK E&S are merging. This will create the largest private energy company in the Asia-Pacific region with assets of 100 trillion KRW and sales of 88 trillion KRW. The SK rebalancing (business restructuring) aimed at revitalizing the struggling SK On has officially begun.

Merger ratio 1 to 1.2... Launch expected in November upon shareholder approval

On the 17th, SK Innovation and SK E&S each held board meetings and approved the merger agenda between the two companies.

The merger ratio between the two companies is 1 to 1.1917417. This was calculated based on the corporate values of SK Innovation and SK E&S respectively. The merger price was calculated as 112,396 KRW for SK Innovation and 133,947 KRW for SK E&S. Although initial expectations favored a 1 to 2 merger ratio, the corporate values of both companies were determined to be nearly equal.

According to the merger ratio, the listed company SK Innovation will issue new shares and deliver 49,769,267 shares to SK Corporation, the shareholder of SK E&S. The new SK Innovation shares are expected to be listed on November 20. After the merger, SK Corporation’s stake as the largest shareholder of SK Innovation will increase from 36.22% to 55.9%.

If the merger plan is approved at the extraordinary general meeting scheduled for the 27th of next month, the merged entity will officially launch on November 1. Approval requires the consent of at least two-thirds of the voting shareholders present and at least one-third of the total issued shares.

The stock purchase rights claim period is from the 27th of next month to September 9. The purchase price for SK Innovation common stock is 111,943 KRW.

"Merger to expand energy portfolio... also improves financial structure"

The merger of the two companies is expected to create synergy in three aspects beyond mere external growth: ▲strengthening portfolio competitiveness ▲enhancing financial and profit structures ▲securing growth momentum.

Financial structure before and after the merger of SK Innovation and SK E&S.
[Photo by SK Innovation]

First, by merging two companies engaged in diverse businesses, the portfolio will become more diversified. The merged company will build a portfolio across all energy sectors including petroleum & chemicals, LNG, city gas, power generation, renewable energy, batteries, ESS, hydrogen, SMR, ammonia, and cryogenic cooling.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) will increase by 1.9 trillion KRW to approximately 5.8 trillion KRW compared to before the merger. In particular, the merged company is expected to enhance the financial stability of the group’s petrochemical business?which has high revenue volatility?by leveraging the stable cash generation capabilities of LNG, power generation, and city gas businesses.

Additionally, operational efficiency can be improved. The combination of SK Innovation’s crude oil refining, crude oil and petroleum product trading, and oil development business with SK E&S’s gas development, LNG trading, and combined cycle power generation will enhance exploration and development economics and profitability. Shared use of infrastructure such as ships and terminals will enable operational optimization.

The two companies anticipate EBITDA synergy effects of more than 2.1 trillion KRW by 2030 from the integration alone. They have also set a goal to achieve total EBITDA of 20 trillion KRW.

Merger of three companies including SK On also approved... 'Reviving SK On' project begins in earnest

Meanwhile, the merger plan among SK On, SK Trading International, and SK Entum has also been approved, signaling the official start of the 'Reviving SK On' project.

On the same day, the three companies each held board meetings and approved the merger. The merger ratios between SK On and the other two companies are 1 to 16.9 and 1 to 2.7 respectively. This merger will be finalized at the extraordinary general meeting scheduled for the 27th of next month.

The merger of SK Innovation and SK E&S was also pursued to respond to rapidly changing external management environments such as the EV market chasm (demand slowdown before mass adoption). Within the group, SK E&S is regarded as a ‘cash cow’ with excellent cash generation capabilities, and merging it with SK Innovation was a decision aimed at rescuing SK On, which has been running deficits.

Battery business, along with artificial intelligence (AI) and semiconductors, is a key business of the group. Although SK On has been posting losses for 10 consecutive quarters since its launch in October 2021, the group’s commitment to investing in the battery business remains strong.

Park Sang-gyu, President of SK Innovation, recently stated at an SK Innovation group employee workshop, "The electric vehicle-related business is a predetermined future," and pledged to continue investing in the battery business.