[Initial View] 'Owner-Baraegi' Merger Ratio

SK·Doosan Group Governance Restructuring
Owner Control Secured Over Common Shareholders
Repeating Backward Structure, Not 'Value Up'

The rationale behind the governance restructuring of SK Group and Doosan Group is relatively clear. The split and merger strategies proposed by the management are quite understandable when considering the current situation of the groups and the future industrial development perspective.

SK Group currently faces its highest-ever debt (borrowings) burden. Due to long-term losses in the semiconductor business, sluggish performance in the refining and chemical sectors, and massive financial support for SK On, it has reached a point where further investment is difficult. There is growing concern that increasing debt further could push the entire group to a critical limit.

To save SK On, the only conclusion is to merge the parent company SK Innovation with SK E&S, the group's cash cow. This is the only way to restore the financial strength of SK Innovation, which is the main provider of funds to SK On. They also decided to attach SK Trading International and SK Entum, which generate stable profits, to SK On to improve SK On’s own cash flow.

The holding company SK Inc. also needs to improve its financial structure. It plans to contribute its stakes in the valuable affiliates Essencore and SK Materials Airplus to SK Ecoplant in kind, receiving SK Ecoplant shares in return. Once the transaction is completed, SK’s stake in SK Ecoplant will increase, and the IPO process of SK Ecoplant, whose valuation has risen, can accelerate again. SK Inc. will be able to secure liquidity by selling part of the increased shares.

Doosan Group also decided to acquire Bobcat, a valuable company, through M&A to foster robotics, which is considered a future business of the group. Bobcat, which manufactures bulldozers and agricultural machinery, is more rational to seek synergy with e-Doosan Robotics. A robotics company does not quite fit with Doosan Enerbility, which builds power generation equipment and plants. According to the outlook at CES, the world’s largest electronics and IT exhibition, where it was predicted that fully autonomous driving might be faster in agricultural machinery than in cars, seeking synergy between Bobcat and robotics companies seems strategically more useful.

The reason why noise continues despite the clear rationale for governance restructuring is the strong impression that the merger ratios and other terms favor the owners or the holding companies. This inevitably increases the relative sense of deprivation among other shareholders or minority shareholders who suffer losses from the restructuring.

SK Inc.’s stake in SK Innovation will increase from the existing 36.2% to 55.9%. This is because a merger ratio more favorable to SK E&S shareholders, who have a higher stake in the holding company than SK Innovation shareholders, was adopted. SK Innovation shareholders must accept the merger at the most undervalued state in history. Even among SK Innovation employees who bought shares through employee stock ownership by borrowing money during last year’s rights offering, there are complaints. They feel it is unfair that after pouring funds into SK On, which led to a deteriorated financial situation and a stock price plunge, they are also losing out on the merger ratio.

Bobcat shareholders were also seriously blindsided. The deficit company Doosan Robotics is merging with Bobcat, whose sales and asset value are 20 times larger, at an excessively low price, causing losses. Doosan, controlled by the owner family, is increasing its control over merged Doosan Robotics and taking a large portion of dividends generated from Bobcat’s substantial cash flow.

In the history of governance restructuring of domestic companies, the merger ratio has never favored general shareholders over owners. The backward governance structure, identified as a factor for undervaluation in the domestic stock market, continues to be repeated even in the current domestic capital market, which is raising voices for 'value-up.'