SK Innovation and SK E&S, two of SK Group’s leading energy companies, are set to merge, creating an energy behemoth with over 100 trillion won ($72 billion) in assets. With a total asset value of 106 trillion won, this merger will make the combined entity the eighth largest company by assets in South Korea, just behind Hanwha Group.
SK Group will finalize the merger plan at a business strategy meeting on June 28-29, attended by the group’s top executives, according to people with knowledge of the matter on June 20. The two companies will then convene their respective boards of directors and extraordinary general meetings in mid-July to approve the merger and proceed with the necessary procedures. SK Innovation and SK E&S are intermediate holding companies, with SK Group’s holding company, SK Holdings, owning 36.2% and 90% of the shares, respectively.
SK Innovation, which started as an oil refinery, is Korea’s largest private energy company with a focus on petroleum, including oil refining, petrochemicals, and lubricants. Its subsidiaries, including SK Energy, recorded 77 trillion won in sales and 1.9 trillion won in operating income last year. SK E&S posted 11 trillion won in sales and 1.3 trillion won in operating profit from LNG power generation, solar power, wind power, and hydrogen energy. The merger is expected to create an energy giant that spans fossil fuels and renewable energy.
Additional mergers between the two companies’ subsidiaries are also expected, according to sources. SK Innovation’s electric vehicle battery subsidiary, SK On, is anticipated to merge with SK E&S’s power generation and LNG business subsidiaries.
The decision to merge SK Innovation, SK Group’s flagship company, with the smaller SK E&S is driven by the potential benefits of creating a larger energy company and addressing the financial challenges of SK On, the EV battery company seen as the group’s next-generation growth engine. Despite the positive outlook surrounding the battery maker, SK On recorded a deficit of over 400 billion won in the first quarter of this year, marking its 10th consecutive quarter of losses. This prompted SK Group to seek a breakthrough by consolidating its energy business.
SK Group separated SK Innovation’s battery division to establish SK On in October 2021, aiming to capture the burgeoning EV battery market and support large-scale investments. However, the group decided to merge the two energy affiliates as SK On’s slow performance recovery, coupled with a temporary slowdown in EV demand, hindered the company’s ability to attract external investment and secure funds through borrowing.
SK On reported an annual loss of 748.1 billion won last year, followed by a 473.2 billion won loss in the first quarter of this year. The company’s net borrowings exceeded 15 trillion won as of the first quarter as it continued large-scale investments as losses accumulated each quarter. The company has invested more than 20 trillion won in capital expenditures over the past three years but needs an additional 7 trillion won this year.
SK E&S is considered the group’s financial lifeline, paying out more than 500 billion won in dividends to its holding company, SK Holdings, last year. This has been cited as an obstacle to the merger. But the merger was deemed necessary as SK E&S could no longer sustain SK On on its own, according to industry insiders.
