SK Innovation, SK E&S boards approve merger

The boards of SK Innovation and SK E&S approved a merger, setting the stage for the biggest restructuring at SK Group in over two decades in a bid to keep SK On afloat.

The SK logo is displayed at the SK Seorin Building in Jongno District, central Seoul, where SK Innovation is headquartered. [NEWS1]

The boards of SK Innovation and SK E&S approved a merger on Wednesday, kicking off what's expected to be the biggest restructuring at SK Group in two decades.

The merger will lead to the creation of an energy giant with an asset value of 106 trillion won ($77 billion) and combined revenue of 90 trillion won encompassing industries from oil refining to renewable energy and EV batteries. The merged company will launch on November 1.

The merger ratio of SK Innonvation and SK E&S was settled at one to 1.2, and SK E&S will operate as a "company in company" under which no workforce adjustment is made and management independence is guaranteed.

"[The purpose of the merger] is to elevate profitability and growth potentials while enhancing the company's sustainability by securing growth engines for the future energy business and establishing a stable profit structure," SK Innovation said in an electronic disclosure Wednesday afternoon after the board meeting.

The two companies aim to reach 20 trillion won in earnings before interest, taxes, depreciation and amortization by 2030.

SK Group is in the process of a major restructuring amid mounting liabilities at its key affiliates accumulated through years of aggressive merger and acquisition deals as well as overseas factory construction.

The latest merger deal aims to salvage cash-strapped SK On, an EV battery maker, that's has logged 10 consecutive quarters of operating losses due to slowing demand for electric cars.

SK On is a wholly owned subsidiary of SK Innovation spun off in 2021. SK Innovation's merger with SK E&S, a cash-cow business within SK Group dedicated to liquefied natural gas and other forms of renewable energy that reported 1.3 trillion won in operating profit last year, will improve the struggling battery firm's finances.

The two companies plan to hold a shareholder meeting next month to approve the deal.

SK Inc.'s ownership of the new SK Innovation will go from 36.2 percent to 55.9 percent after the merger.

SK On and SK Trading International, which specializes in crude oil trading, as well as SK Enterm, which specializes in energy logistics, also decided to merge in their respective board meetings on Wednesday.

"The merger of SK Innovation and SK E&S is a structural and fundamental innovation that targets sustainable growth by actively responding to environmental changes surrounding the energy industry," said SK Innovation CEO Park Sang-kyu in a release Wednesday.

SK Inc., the holding company of SK Group that owns 36.2 percent of SK Innovation and 90 percent of SK E&S, will hold a board meeting on Thursday to discuss the matter as well.

SK Innovation shares soared by 5.65 percent on Wednesday on hopes of approval for the merger, closing at 119,700 won.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]