SK Innovation expected that it could save about 60 billion won in annual expense through a merger by absorption of separator subsidiary SK IE Technology (hereafter SKIET). It also projected that, by strengthening profitability, it would turn to profit on an EBITDA basis within the next two years.
On the 26th, at a briefing on the SKIET merger by absorption, SK Innovation explained the background and effects of the merger that the two companies' boards each voted on the previous day. After the merger is completed, SKIET is to be integrated as the separator business unit within SK Innovation.
As profitability in the separator business deteriorated, SK Innovation reviewed options such as selling SKIET to a third party, lending funds, or a comprehensive stock exchange, and concluded with a merger by absorption. As reasons for deciding to absorb SKIET, SK Innovation cited bolstering financial stability, streamlining the business structure, and mitigating business risk.
An SK Innovation official said, "This was a decision to block the possibility that, if SKIET faces difficulties with borrowing fund due to the downturn in the separator business, financial instability could spread to SK Innovation affiliates," adding, "By integrating SKIET's product development capabilities with SK Innovation's research and development (R&D) capabilities, we can enhance business competitiveness and develop products centered on key customers." The official went on, "We decided to merge by absorption to minimize supply risks within the battery value chain."
SK Innovation expected that the SKIET merger by absorption would improve EBITDA. An SK Innovation official said, "We plan to consolidate the organizations and functions that SKIET operated independently into SK Innovation and optimize production and marketing functions around core customers," adding, "There will be an EBITDA improvement effect of about 60 billion won a year."
In addition, SK Innovation will identify additional expense-cutting tasks even after merging with SKIET. It also plans to combine SKIET's product development capabilities and research and development (R&D) capabilities with SK Innovation to lower expense and raise profitability.
In this regard, SK Innovation will reorganize SKIET's production bases. SK Innovation will sell SKIET's China plant and suspend operations at the Jeungpyeong plant. According to the battery industry, SKIET's Jeungpyeong plant is operating at about 20%. However, investment in the Poland plant, into which about 2 trillion won has been put so far, is to be wrapped up within this year.
An SK Innovation official said, "If it is merged by absorption into SK Innovation, additional EBITDA can be generated," adding, "The goal is to turn EBITDA to profit within two years." The official added, "Although the spread of the electric vehicle market has slowed, if this part is resolved, there is potential."
Regarding concerns that earnings per share (EPS) could be diluted due to the issuance of new shares following the merger, the official said, "Because (the number of newly issued shares) is about 2.6% of the existing number of shares outstanding, the dilutive effect is limited."
Meanwhile, SK Innovation launched SKIET as a separate corporation in 2019, but as growth in the electric vehicle market slowed, it decided to combine them after seven years. The merger ratio between SK Innovation and SKIET is 1 to 0.1174540, meaning 0.1174540 SKIET common shares for each SK Innovation common share. The two companies plan to approve the merger plan at SK Innovation's board meeting and SKIET's shareholders meeting on Nov. 24. The merger date is Jan. 1, 2027.