SK Innovation Co. Ltd. and SK E&S Co. Ltd., both under diversified South Korean group SK Inc., have agreed to merge into a KRW 100 trillion ($66.2 billion) company spanning the entire value chain of conventional and alternative energies.
SK Innovation explores for and produces oil and gas (O&G) and makes petrochemicals and lubricants. It also manufactures batteries and chemicals.
SK E&S is a liquefied natural gas (LNG) producer expanding into renewable energy and hydrogen. Currently it also distributes city gas, generates electricity and provides technological solutions for the grid and distributed energy infrastructure. SK E&S spun off SK Innovation in 1999 as a city gas holding firm.
“The merger between the two companies is being undertaken to proactively address the rapidly evolving external business environment, which includes the prolonged global economic downturn, heightened uncertainty in the energy and chemical sectors, and the chasm in the electric vehicle market”, a joint statement said.
“… the merged company will develop a comprehensive portfolio that spans all areas, including energy sources (such as oil, chemicals, LNG, city gas, power, renewable energy, batteries, ESS, hydrogen, SMR, ammonia, and immersion cooling), energy carriers, and energy solutions”, SK E&S and SK Innovation added.
The combination would form the Asia-Pacific’s highest-valued energy company, with SK E&S and SK Innovation’s portfolio valued at KRW 100 trillion together, according to the companies.
The resulting entity would have a combined revenue of KRW 88 trillion ($58.3 billion). It would have KRW 5.8 trillion ($3.8 billion) in earnings before interests, taxes, depreciation and amortization (EBITDA), compared to KRW 1.9 trillion ($1.3 billion) in combined EBITDA pre-merger, according to the statement.
“The two companies anticipate that by 2030, the synergies from the integration will alone add over KRW 2.1 trillion [$1.4 billion] to EBITDA, aiming for a total EBITDA of KRW 20 trillion [$13.2 billion]”, it said.
“Notably, the merged company will be able to mitigate the high profit volatility of the petrochemical business, which has served as a reliable cash cow, with the stable profit generation capabilities of the LNG, power, and city gas businesses”, it said.
“An analysis of the pre-tax profit volatility over the past 10 years shows that the merged company’s pre-tax profit volatility will be significantly reduced from 215 percent to 66 percent”.
As part of the merger deal, SK Innovation agreed to issue nearly 50 million shares to government-backed SK Inc., which would raise the latter’s stake in SK Innovation from 36.22 percent to 55.9 percent.
Shareholders will vote on the merger July 27. The combined entity will launch November 1 if investors approve the transaction.
Simultaneously, three of SK Innovation’s subsidiaries — SK Enterm, SK On and SK Trading International — also agreed to merge, according to the same statement.
SK Enterm is a tank terminal operator specializing in petroleum storage. SK On is a battery developer while SK Trading markets crude oil and oil products.
“Through the merger of these three companies, SK On will be able to further strengthen its competitiveness in securing raw materials and ensure business sustainability”, the statement said.
“Additionally, SK Trading International will secure future growth engines by entering new mineral trading fields such as lithium and nickel, while the merger with SK Enterm will provide the necessary storage capacity for its trading business.
“Most importantly, the merger of the three companies is expected to improve the profit structure by generating an additional KRW 500 billion [$331.2 million] in EBITDA from the trading and tank terminal businesses”.
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