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Group restructuring

SK Group’s holding firm aims to become Korea’s Berkshire Hathaway

Apr 21, 2021 (Gmt+09:00)

SK Group Chairman Chey Tae-won
SK Group Chairman Chey Tae-won

Jang Dong-hyun, chief executive of SK Inc., formerly known as SK Holdings Co. made a rare public remark during a March shareholder meeting, saying that the company aims to raise its enterprise value to some 140 trillion won ($123 billion) by 2025.

If realized, he said the price of its stock, currently trading at 303,000 won a share, will rise more than sixfold to 2 million won by then.

To do so, the holding and investment company of SK Group, South Korea’s third-largest conglomerate, needs to transform into a “value investor” by focusing its resources on growth sectors, he said.

The public announcement of a highly ambitious plan with a set deadline signals SK’s wish to complete the restructuring of the conglomerate while maintaining Group Chairman Chey Tae-won’s management control over affiliates, analysts said.

“The holding company is following the financial storytelling pursued by the group chairman. The industry is closely watching SK to gauge how its restructuring unfolds,” said a local business group official.

Eventually, SK Inc. hopes to be likened to Warren Buffett’s Berkshire Hathaway Inc., which currently trades at $403,089 or more than 451 million won, a share, he said.

TELECOM, HYNIX AT CENTER OF RESTRUCTURING

At the center of SK’s group reorganization lies SK Telecom Co. and its affiliate SK Hynix Inc.

SK Telecom, the mobile unit of the group, said last week it will split into two separate entities to enhance its corporate value.

Through a spin-off, SK Telecom will be divided into a remaining entity succeeding its telecom business, and a new entity that is essentially an investment firm seeking new opportunities in non-telecom sectors.

SK Telecom CEO Park Jung-ho explains the company's spin-off plan during a town hall meeting.
SK Telecom CEO Park Jung-ho explains the company's spin-off plan during a town hall meeting.

During a town hall meeting with employees on Apr. 14, SK Telecom Chief Executive Park Jung-ho said the company is not fairly valued by the market with its market cap at 20 trillion won, while its subsidiary SK Hynix is valued at 100 trillion won.

Industry officials say SK Group may seek to eventually merge SK Inc. with the new investment entity from SK Telecom’s spin-off to create synergy.

The combination, however, could dilute the value of Group Chairman Chey’s 18.44% stake in SK Inc. unless its share price significantly rises from the current level. A share dilution could be a sensitive issue for the SK Group owners, whose management control was threatened by foreign investors’ onslaught led by Sovereign Asset Management Ltd. in the early 2000s.

Combined with related parties, the SK Group owners hold less than 30% of the holding company.

VALUE INVESTOR

As part of its efforts to become a value investor, the holding company changed its corporate name to SK Inc. from SK Holdings at the March shareholders’ meeting.

To enhance its corporate value, SK Inc. said it will concentrate its investment on four strategic sectors – new materials, bio, green and digital.

Earlier this year, SK Inc. and SK E&S Co., a natural gas subsidiary, spent 800 billion won each in a $1.5 billion deal to acquire a controlling stake in US hydrogen fuel cell maker Plug Power Inc.

SK Inc. CEO Jang Dong-hyun
SK Inc. CEO Jang Dong-hyun

SK Group later said it reaped more than two trillion won in gains from the investment as the share price of Plug Power increased.

In February, SK Inc. decided to raise its 2020 dividend payout by 40% to 7,000 won, putting its annual dividend payout at 370 billion won.

Its goal of achieving a market capitalization of 140 trillion won represents nearly seven times its current share price. Samsung Electronics Co. is the only listed company in Korea that has more than 140 trillion won in market cap.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com

In-Soo Nam edited this article.

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