SK Inno·E&S Merger, National Pension Service's 'Share Purchase Request Right' Choice as Final Variable

"Separate from merger opposition... Not aligned with investment strategy"
Plan to respond with 1.4 trillion won cash capacity

As the merger plan between SK Innovation and SK E&S passed the extraordinary general meeting of shareholders on the 27th, the final variable remains how many shareholders opposing the merger will exercise their right to request stock purchase. In particular, attention is focused on what choice the National Pension Service, which holds a stake amounting to 85% of the purchase amount prepared by SK Innovation, will make.

On the day, SK Innovation held an extraordinary general meeting at the SK Seorin Building in Jongno-gu, Seoul, and approved the merger contract agenda with SK E&S. The National Pension Service, the second-largest shareholder of SK Innovation, exercised its voting rights against the merger as expected at the meeting, but the merger was approved as originally planned with 85.76% of attending shareholders voting in favor.

SK E&S, with SK Group’s holding company SK Inc. as the largest shareholder (90%), also approved the merger plan at its general meeting on the same day. Accordingly, the merged entity will officially launch on the 11th.

If All Opposing Shareholders Exercise Stock Purchase Rights, Purchase Price Will Far Exceed Expected Amount

On the 27th, ahead of the merger approval between SK Innovation and SK E&S, energy affiliates of SK Group, shareholders attending the 'SK E&S Extraordinary General Meeting' held at SK Seorin Building in Jongno-gu, Seoul, are entering the meeting hall. Photo by Jinhyung Kang aymsdream@

One more hurdle remains. It is the scale of the exercise of stock purchase rights by shareholders opposing the merger, including the National Pension Service. The stock purchase right is the right of shareholders opposing the merger to request the company to purchase their shares at a certain price.

If the National Pension Service, which holds 6.2% of SK Innovation’s shares, exercises all of its stock purchase rights, SK will have to purchase shares worth 681.7 billion KRW. This amount approaches the 800 billion KRW purchase amount prepared by SK Innovation. The expected purchase price is 111,943 KRW per share.

On the day of the general meeting, SK Innovation’s stock opened at 107,900 KRW, up 1,400 KRW (1.3%) from the previous day, and was trading sideways, below the expected purchase price. It is expected that many SK Innovation shareholders will choose to exercise their purchase rights rather than sell shares to realize profits. Assuming all shareholders opposing the merger exercise their stock purchase rights in full, SK will have to purchase shares worth 922.9 billion KRW, far exceeding the expected purchase price.

"It Is Difficult for the National Pension Service to Actively Pursue Stock Purchase Rights"

On the 27th, ahead of the merger approval between SK Innovation and SK E&S, energy affiliates of SK Group, a shareholder attending the 'SK E&S Extraordinary General Meeting' held at SK Seorin Building in Jongno-gu, Seoul, is being verified as a shareholder. Photo by Kang Jin-hyung aymsdream@

SK Innovation announced that if the purchase amount exceeds 800 billion KRW, the contract may be canceled or merger conditions changed, but considering the approval rate at the general meeting and stock price trends, the industry views the possibility of merger failure as slim.

An industry insider said, "The National Pension Service is an institution that pursues corporate growth and dividends through long-term stockholding, different from hedge funds that pursue high returns through aggressive strategies. While it can express opposition to the merger, exercising stock purchase rights does not align with the National Pension Service’s basic investment strategy, and there is no guarantee that shares can be repurchased at a cheaper price after selling."

Another industry insider said, "If the National Pension Service exercises stock purchase rights, it will incur stock transaction costs, taxes, and administrative expenses, which could result in greater losses." He added, "The National Pension Service’s passive investment ratio tracking indices is over 50%, and SK Innovation, which will become a 100 trillion KRW company after the merger, will naturally be included in the index, so they will have to repurchase the shares. If stock purchase rights are exercised, the money is deposited within two months, but if the stock price rises during that period, losses may occur."

Park Sang-gyu, President of SK Innovation: "Company Has 1.4 Trillion KRW in Internal Cash... Can Handle Costs"

Chairman Park Sang-gyu, President of SK Innovation, is conducting the extraordinary general meeting of shareholders of SK Innovation held on the 27th at the SK Seorin Building in Jongno-gu, Seoul. Photo by Choi Seoyoon

SK Innovation stated that even if the stock purchase amount exceeds 800 billion KRW, the merger will not immediately fail, and the company has sufficient capacity to bear the costs. Park Sang-gyu, chairman and president of SK Innovation, said at the general meeting, "If the amount is excessively large, it would be a concern, but since the company holds more than 1.4 trillion KRW in cash, it is not at a level that cannot handle stock purchase rights." He added, "We expect that the stock purchase rights will not exceed the range anticipated by the company. If the amount does exceed, we will decide on whether to proceed after consulting with the board of directors."

Shareholders who have notified their opposition can exercise their stock purchase rights from the day of the meeting until the 19th of next month. According to the Commercial Act, shareholders registered in the shareholder registry as of the record date must notify their opposition before the general meeting. Only shareholders who have expressed opposition can request to purchase some or all of their shares within 20 days from the date of the general meeting resolution.

President Park said, "I apologize that the stock price did not meet expectations. We will create synergy to generate the expected rate of return and will discuss with the board of directors to ensure that shareholders’ interests are not harmed by any harsh remarks toward management." He added, "After the merger is completed, we will consider various matters including the company’s finances and pursue shareholder-friendly policies."