As SK Innovation announced a plan to absorb and merge its subsidiary SK IE Technology (hereafter SKIET) to normalize its money-losing separator business, attention is focusing on whether it can persuade shareholders. A merger decision can be made by a board resolution, but if 20% of shareholders oppose it, the process must be restarted.
According to SK Group on the 27th, SK Innovation held an online briefing the previous day regarding the absorption-type merger of SKIET and plans to hold a shareholder meeting on Sept. 14. It will also accept objections from shareholders regarding the merger between Sept. 9 and 23.
SK Innovation announced on the 25th that it would absorb and merge SKIET through a small-scale merger. Under the Commercial Act, if the number of new shares issued by the surviving company (SK Innovation) due to the merger does not exceed 10% of the total number of shares issued by the surviving company, it qualifies as a small-scale merger.
The number of new shares SK Innovation will issue for the SKIET absorption-type merger is 2.6% of SK Innovation's total issued shares. Because it falls under a small-scale merger, the merger approval of SK Innovation's general meeting of shareholders can be replaced by board approval.
However, if 20% or more of SK Innovation's shareholders oppose it, the small-scale merger procedure is halted. That is why SK Innovation is proceeding with the process of receiving objections to the absorption-type merger from shareholders. If 20% or more of shareholders oppose the merger, a special resolution at a general meeting of shareholders must be obtained instead of board approval.
The problem is that, from the perspective of SK Innovation shareholders, the SKIET absorption-type merger is not welcome news. That is because SKIET's performance and financial soundness have deteriorated.
SKIET was launched in April 2019 after SK Innovation's materials business was spun off and was listed on the main bourse in May 2021. Pinning hopes on the spread of the electric vehicle market, it continued investing in lithium-ion battery separator production facilities in Korea, China, and Poland.
At the time of listing, expectations for the electric vehicle market were high. However, the pace of the market's expansion fell short of expectations, and its product competitiveness was also judged to be below expectations compared with Chinese companies. SKIET has been recording operating losses since 2024.
SKIET posted operating losses of 291 billion won in 2024 and 246.4 billion won in 2025, respectively. Since its 2021 listing, the only years SKIET recorded operating profit were 2021 (89.2 billion won) and 2023 (32 billion won). Its operating loss in the first half of this year also reached 136.7 billion won. Net debt stands at 1.15 trillion won, and the debt ratio at 152%, up 83 percentage points from the end of last year.
As performance worsened, SKIET conducted a 300 billion won rights offering in August last year using a price return swap (PRS) structure. In May, it also announced plans to halt commercial production within the year at its separator plant in Jeungpyeong-gun, North Chungcheong. The Jeungpyeong plant began operations in 2010 and has been running for more than 15 years.
In addition, SKIET sold its 100% equity stake in its Chinese plant operating entity, "SK Hi-Tech Battery Materials," to a Chinese separator company in May for 400 million yuan (about 88.8 billion won).
Despite various measures, as SKIET failed to improve profitability on its own and had limited capacity to raise funds, SK Innovation decided on an absorption-type merger.
At the online briefing the previous day, SK Innovation said it had reviewed a third-party sale, lending, equity investment, and a comprehensive share exchange, but decided on an absorption-type merger after judging that it was better to secure financial stability based on SK Innovation's credit.
From the perspective of SK Innovation shareholders, they are effectively taking on a loss-making company when first-half results are strong. SK Innovation, helped by improved profitability in its lubricants and battery businesses, posted 3.4873 trillion won in operating profit in the second quarter, swinging to a profit from a year earlier.
In particular, sentiment among shareholders is negative because SK Innovation did not pay dividends last year and is also passive about crafting a shareholder return policy this year. On a consolidation basis last year, SK Innovation's revenue was 80.296 trillion won and operating profit was 448.1 billion won, up 8.2% and 25.8% from a year earlier, respectively.
However, net profit plunged 127.9% from a year earlier, resulting in a loss of 5.4061 trillion won. Accordingly, SK Innovation said in January, "We decided not to pay dividends in line with changes in performance and the business environment."
SK Innovation is holding back, saying it will announce shareholder return measures later. Seo Geon-gi, head of finance (executive vice president) at SK Innovation, said the previous day, "SK Innovation's consolidated financial statements will be maintained at the same level as before the merger," and added, "Regarding the shareholder return policy, we will comprehensively review mid- to long-term profit, the size of net debt, investment plans, and free cash flow, and will speak once it is finalized."
In a report released that day, Yoon Jae-sung, an analyst at Hana Securities, said, "If support for subsidiaries takes priority despite improved cash flow and financial structure thanks to favorable conditions in the refining and base oil markets, existing shareholders' expectations for expanded shareholder returns will inevitably weaken," adding, "It is necessary to clearly set additional funding limits for SK On and SKIET and to draw up concrete shareholder return guidelines, including share repurchases and cancellations and increased dividends."