SK innovation, SK E&S edge closer to becoming energy giant

SK Innovation CEO & President Park Sang-kyu speaks at a press conference on the morning of 18 July. [Photo by Yonhap]

SK innovation Co. and SK E&S Co. are a step closer to forming a comprehensive energy company that will include oil, liquefied natural gas (LNG), renewables, hydrogen, batteries, and small modular reactors.

Both SK Group subsidiaries held separate board meetings on Wednesday where the merger proposal was approved, the companies announced on the same day. The merged entity will have assets of 100 trillion won ($72.4 billion) and revenue of 90 trillion won, making it the largest private energy company in the Asia-Pacific region. The merged entity is scheduled to be launched on November 1st, 2024, if the merger proposal is approved at the shareholders‘ meeting at the end of August.

The merged entity will be called SK innovation, with the merger ratio between the two companies set at 1 to 1.19, based on the valuation of each company’s enterprise value. This is considered favorable for SK innovation’s minority shareholders, with fewer SK innovation shares exchanged for each SK E&S share making it more advantageous for SK innovation’s shareholders, and the capital market predicted a merger exchange ratio of up to 1 to 2. According to the merger ratio, SK innovation will issue new shares and give 49,769,267 shares to SK Inc., the largest shareholder of SK E&S (with 90 percent stake). After the merger, SK‘s stake in SK innovation is expected to increase to 55.9 percent from 36.2 percent.

The merger between the two companies was sought to support SK on Co., which has been reporting losses for 10 consecutive quarters, as well as secure future energy competitiveness. SK on is a subsidiary of SK innovation, and a merger with SK E&S, which posted a net income of about 1 trillion won in 2023, will likely increase SK innovation’s financial capacity to support SK on. The move will likely improve SK on’s financial structure and expand investments.

Meanwhile, SK on, SK Trading International Co. and SK enterm Co. also held their respective board meetings on the same day and approved the merger between the three companies.