SK Group to Merge Energy Units to Help Ailing Battery Business

(Bloomberg) -- SK Group will combine two energy-related units as South Korea’s second-largest conglomerate undergoes a major restructuring in a bid to shore up finances in a loss-making battery business.

SK Innovation Co., the parent of troubled battery unit SK On Co., will acquire SK E&S Co. in an all-stock deal, according to an exchange filing on Wednesday. The combined company will have total assets of about 100 trillion won ($73 billion), SK Innovation said. In addition, SK On will be merged with two other units of SK Innovation, the filing showed.

The merger, which is part of SK’s group-wide revamp to assist loss-making businesses, reflects the challenges faced by battery makers as electric-vehicle demand growth has slowed, while capacity has boomed. At the same time, the stakes are also personal for the group’s chairman, Chey Tae-won, as he needs to manage his own finances ahead of a massive divorce payment.

The overhaul comes after shares in SK Innovation plunged more than 25% in the past year, with S&P Global Ratings slashing its credit rating to junk in March. Unlisted SK On, which is still majority-held by SK Innovation, has posted operating losses every quarter since 2021. 

The overhaul “serves one core objective, which is to rescue SK On,” Park Ju-gun, head of corporate research firm Leaders Index in Seoul, said before the announcement was made. “At this point, SK is doing everything in its power to improve the balance sheet of SK On, which still needs a massive capital expenditure of about 7 trillion won this year alone.”

The deal proposed an exchange ratio of one SK E&S share for every 1.1917417 SK Innovation share. The merger, subject to shareholder approval, will be completed in November. SK Inc., the holding company behind the conglomerate, owns 90% of SK E&S and 36.2% of SK Innovation.

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