SK Innovation aims to 'cross EV chasm' with SK E&S merger: CEO

The merger between the SK Innovation and SK E&S will create a foundation for growth in the energy business and structural innovation to buttress EV battery maker SK On.

SK Innovation CEO Park Sang-kyu speaks during a press conference held at SK Seorin Building in central Seoul on Thursday. [YONHAP]

The massive SK Innovation-SK E&S merger, which is expected to create an energy giant worth 100 trillion won ($72.4 billion) in assets, will help SK Group’s money-bleeding battery business "cross the EV chasm,” SK Innovation’s chief executive said Thursday.

“The rationale behind the merger deal with SK E&S is to build a foundation for our future energy business to grow and to drive structural innovation,” said SK Innovation CEO Park Sang-kyu during a press conference held at the SK Seorin Building in central Seoul on Thursday.

Park explained that the decision was aimed at addressing the major shift in the energy sector, including “the EV chasm in the short term,” referring to an ongoing industrywide slowdown in the EV market as mainstream adoption continues, as well as “the surge in electricity demand driven by AI technology.”

“The merger was decided on based on long-term prospects, about five to 10 years from now,” said Park, adding that “SK Innovation and SK E&S will establish a task force to maximize the synergy.”

The press conference came a day after the boards of SK Innovation and SK E&S approved a merger of the two companies, which will result in the largest private energy company in the Asia-Pacific region with an asset value of 100 trillion won and a combined revenue of 88 trillion won. The merged company will launch on November 1.

The merger ratio of SK Innovation and SK E&S was settled at one to 1.19, which Park called an “appropriate valuation considering each company’s current business capabilities and the growth potential.”

The companies expect that SK E&S’s capabilities in liquefied natural gas, hydrogen and renewables will be able to complement the gap between SK Innovation’s two business pillars: conventional petroleum refining and petrochemical manufacturing, and EV battery manufacturing.

The latest merger deal aims to salvage SK On, a money-losing EV battery maker 89.5 percent owned by SK Innovation, by securing cash through SK E&S. However, Park argued that the financial situation for the battery-making subsidiary will improve by next year.

“SK On’s major investments are now near completion,” said Park, “and therefore, we expect its financial burden to reduce significantly by next year.”

Regarding a possible objection to the merger from Kohlberg Kravis Roberts (KKR), a private equity fund that has redeemable convertible preference shares worth 3 trillion won in SK E&S, the companies remain assured that the risk is low.

“The discussion with KKR is ongoing on amicable terms,” said SK E&S Chief Financial Officer Seo Geon-gi, adding that “we expect there will be no significant variables [that may affect the deal] in the process.”

SK Innovation's share price dipped 3.17 percent to 115,900 won on the Kospi bourse on Thursday.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]