SK Innovation will merge with its subsidiary SK On and SK Enmove to enhance the competitiveness of its electrification business. As SK On, which operates in the electric vehicle battery sector, has continued to post losses, it aims to improve its financial structure by combining with the profitable SK Enmove, which generates an annual operating profit of 1 trillion won. SK Enmove is involved in the manufacture of electric vehicle lubricants and the development of immersion cooling technologies.
There have been reports of a merger between the two companies; however, it had not proceeded due to opposition from financial investors (FI) of SK Enmove. Last month, SK Innovation repurchased 30% equity held by the FI, becoming a wholly-owned subsidiary, thus removing obstacles to the merger.
On the 30th, Jang Yong-ho, the CEO of SK Innovation, and Lee Seok-hee, the president of SK On, along with other executives, held a briefing on 'SK Innovation's corporate value enhancement strategy' at the SK Serin Building in Jongno-gu, Seoul, announcing such plans.
The essence of the merger is for SK On to improve its financial structure by absorbing SK Enmove. The merger ratio of SK On and SK Enmove is set at 1 to 1.6616742. The merger date is scheduled for November 1.
With this merger, SK On is expected to record 1.7 trillion won in capital and an earnings before interest, taxes, depreciation, and amortization (EBITDA) of 800 billion won this year, leading to immediate improvements in its financial structure.
SK On has also announced a goal of generating more than 10 trillion won in EBITDA by 2030 while reducing its liability ratio to below 100%. In the first quarter, SK On's liability ratio was 251%.
At the group level, there are plans to support significant capital expansion to reduce net borrowing funds. SK Innovation will secure a total of 8 trillion won in capital this year. Initially, SK Innovation will raise 2 trillion won through a third-party equity allocation and will issue perpetual bonds worth 700 billion won.
The subsidiary SK On plans to raise 2 trillion won through a third-party equity allocation. SK IE Technology will also consolidate 5 trillion won in capital, including 300 billion won through an equity increase.
The holding company SK Corp. will directly invest 400 billion won related to SK Innovation's 2 trillion won equity increase. They will enter into a stock price return swap (PRS) agreement concerning a 1.6 trillion won third-party equity increase involving several financial institutions. A PRS is a derivative structured to settle the profit difference if the stock price is below or above a specified price at the contract's maturity.
Subsequently, SK Innovation plans to reduce its borrowing funds by over 1.5 trillion won through the sale and liquefaction of non-core assets. The company expects to achieve a total reduction of more than 9.5 trillion won in net borrowing.