SK Telecom to retire $2.3 bn treasury shares amid corporate split-off

South Korea’s largest mobile carrier SK Telecom Co. said on Tuesday it will retire 8.69 million treasury shares worth 2.6 trillion won ($2.3 billion) in a move to boost its shareholder value.

The share cancellation, amounting to 10.8% of its total outstanding shares, comes as the SK Group, the country’s third-largest conglomerate, is pushing ahead with corporate restructuring, including SK Telecom's split-off, to enhance its enterprise value.

The decision to cancel 93.8% of its entire treasury shares was approved at a board meeting on Tuesday and will be executed on May, 6, the company said in a regulatory filing.

The cancellation will reduce the number of its total floating stocks to 72.06 million from 80.75 million, which is widely expected to push up its share price.

Shares of SK Telecom rose as much as 5.92% to a 52-week high of 322,000 won in early Tuesday trading, but pared earlier gains to finish the day 1.15% higher at 307,500 won.

The sheer number of shares to be retired represents the largest volume in relative to total outstanding stocks among the country’s four biggest conglomerates. In value terms, the treasury share cancellation is Korea’s second-biggest after a combined total of 19 trillion won in such action by Samsung Electronics Co. over 2017 and 2018.

SK Telecom said the remaining 900,000 treasury shares will be used for diverse employee compensation programs, including stock options, over the long term.

ANOTHER MOVE TO LIFT CORPORATE VALUE

The stock cancellation follows the mobile carrier’s announcement in April that it will push to split into two separate entities to enhance its corporate value.

Through the split-off, SK Telecom will be divided into a remaining entity succeeding its telecom business, and a new holding company that is essentially an investment firm seeking new opportunities in non-telecom sectors. The new entity will also oversee the operations of SK Telecom’s subsidiaries, including SK Hynix Inc.

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., the group’s holding company, with the new investment entity from SK Telecom’s split-off to better control SK Hynix.

LOWER CHANCE OF COMBINATION IN NEAR TERM

The share cancellation, however, reduces the chances of treasury shares being used to create conditions favorable for a merger between SK Inc. and the group’s new holding entity, according to analysts.

When SK Telecom repurchased about 2 million of its own shares from the market earlier this year, some investors dumped their SK Telecom holdings over concerns that the company may be preparing for a merger with SK Hynix, which they feared could diminish the value of their shareholdings.

“SK Telecom needs to allay such investor concerns as it has to get approval from shareholders on its planned restructuring by the end of this year,” said an industry official.

SK Telecom said the share cancellation is part of its move to enhance governance transparency in line with its pursuit of environmental, social and governance (ESG)-centered management.

Write to Han-Gyeol Seon at always@hankyung.com
In-Soo Nam edited this article.