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Corporate restructuring

SK Group’s holding firm to absorb SK Materials in corporate restructuring

The proposed merger could be part of SK’s broader reorganization to tighten the leader’s grip on affiliates

By Aug 20, 2021 (Gmt+09:00)

SK Group headquarters in central Seoul
SK Group headquarters in central Seoul

SK Inc., the investment and holding company of SK Group, will absorb SK Materials Co., the group’s industrial gas manufacturing affiliate, in a corporate restructuring aimed at enhancing shareholder value.

The two companies held their respective board meetings on Friday and approved the merger plan, according to regulatory filings.

If the plan is approved at the companies’ shareholders’ meetings on Oct. 29, the merger will be completed as of Dec. 1, the companies said.

Under the proposed merger, SK Materials will split off into a surviving holding company and a new entity that produces gases used in semiconductors and rechargeable batteries.

SK Inc. will then merge with SK Materials’ surviving entity. SK Materials' hive-off will be placed under the merged company as a wholly owned subsidiary.

For the merger, SK Inc. said it will issue new shares and swap them with those of SK Materials at a 1-to-1.58 ratio, meaning SM Materials shareholders will receive 1.58 new SK Inc. shares for each SM Materials stock they own.

“Under the merger, we are seeking to create synergy by combining SK Inc.’s expertise in investments and SK Materials’ business know-how in the semiconductor and battery materials sector,” said an SK Group official.

The merger will also raise SK Inc.’s corporate value, he said.

SK Materials Co.
SK Materials Co.

FOCUS ON GROWTH SECTORS

SK Materials mainly produces nitrogen trifluoride (NF3), used to remove residue on the internal walls of chemical vapor deposition chambers; and silane (SiH4), which is used to deposit silicon on semiconductor wafers and flat-panel glass substrates.

The company posted an operating profit of 233.9 billion won ($198 million) on revenue of 954.9 billion won in 2020. Its operating profit margin was 24.5%.

SK Group, Korea’s third-largest conglomerate, has been ramping up investment in the battery business to gain a greater share of the EV battery market.

Last month, SK Materials said it is setting up a joint venture with a US battery materials startup Group14 Technologies to gain ground in the fast-growing electric vehicle battery materials market.

Analysts said the proposed merger could be part of the group’s broader restructuring aimed at strengthening Group Chairman Chey Tae-won’s management control over affiliates.

Chey has said that SK Inc., formerly known as SK Holdings Co., needs to transform into a “value investor," just like Warren Buffett’s Berkshire Hathaway Inc., by focusing its resources on growth sectors.

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

BROADER RESTRUCTURING SCHEME

As part of the corporate reorganization, SK Telecom Co. said in April it is splitting into two separate entities, with the new entity essentially working as an investment firm in non-telecom sectors.

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 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 SK Group owners, whose management control was threatened by a Sovereign Asset Management Ltd.-led onslaught of foreign investment in the early 2000s.

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

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

The company has also steadily increased its dividend payout to appeal to investors.

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

Last month, the company paid an interim dividend of 1,500 won per share.

Write to Kyung-Min Kang at Kkm1026@hankyung.com

In-Soo Nam edited this article.

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