SK Innovation to be Asia’s top energy company through merger

SK Innovation Co., South Korea’s largest energy company, is set to become the industry leader in Asia through a merger with an affiliate while improving its financial structure weighed down by support to its sluggish battery unit amid sustained weakness in global electric vehicle demand.

SK On Co., the loss-making world’s No. 5 secondary battery maker and SK Innovation’s subsidiary, will merge with the parent’s oil and petroleum trading unit and tank terminal unit to muscle up amid the EV industry slowdown.

SK Innovation, the parent of the country’s top oil refiner SK Energy Co., and SK E&S Co. its liquefied natural gas (LNG) affiliate, at their respective board meetings on Wednesday decided to merge to create a comprehensive energy company.

The two companies set the ratio of SK Innovation and SK E&S’s merger at 1 to 1.1917417 based on their corporate value. SK Innovation listed on South Korea’s benchmark Kospi will issue new shares of the merged entity and give them to SK Inc., the group’s holding company that has almost a 100% stake in the privately held SK E&S. SK Inc.’s stake in SK Innovation is expected to rise to 55.9% from the current 36.22%.

SK Innovation’s shares ended up 5.65% at 119,700 won ($86.7), far outpacing a 0.8% drop in the Kospi, while SK Inc. closed down 0.83% at 155,900 won after the merger was announced.

ASIA’S TOP ENERGY COMPANY

The combined entity is expected to become the largest private energy company with assets of 100 trillion won ($72.4 billion) and sales of 88 trillion won in Asia, SK Group, South Korea’s second-largest conglomerate said.

“We will grow into a total energy and solution company leading the Korean energy industry,” said SK Innovation CEO Park Sang-kyu.

The two companies said they aim to create synergy by combining their core businesses.

They are set to develop new markets by integrating SK Innovation’s projects with SK On including batteries, energy storage systems (ESS) and thermal management systems with SK E&S’ businesses such as dispersed generation, hydrogen and energy solutions.

SK Innovation and SK E&S will be able to use vessels and terminals jointly for economies of scale.

“We aim to advance eco-friendly portfolio to lead the future energy market,” SK E&S CEO & President Choo Hyeongwook.

GLOBAL RESTRUCTURING FOR NET ZERO EMISSIONS

The global energy industry is under restructuring with mergers and acquisitions among major players such as Exxon Mobile Corp. and Chevron Corp. as the sector is preparing to deal with the world’s moves for global net zero emissions.

The industry has seen five such deals with values of more than 10 trillion won since October 2023.

SK Group plans to improve its buying power and diversify business portfolios for investments in promising future growth engines such as the battery, hydrogen and ammonia sectors.

The merger of SK Innovation and SK E&S is predicted to facilitate the group's long-term investments in the battery sector.

SK On decided to invest 7.5 trillion won in facilities this year after spending 7 trillion won last year.

The merged entity is expected to increase capital for the battery supplier to Hyundai Motor Co., Kia Corp. and Ford Motor Co. SK On, which has debts of 23.5 trillion won as of end-March, needs more capital for further investment. SK E&S has 3.2 trillion won in cash and cash equivalents as of the end of the first quarter.

SK Innovation and SK E&S are also predicted to keep investing in hydrogen and EV charging infrastructure and renewable energy businesses by the clean energy company.

Write to Hyung-Kyu Kim and Woo-Sub Kim at khk@hankyung.com
 
Jongwoo Cheon edited this article.