South Korea’s SK Innovation to merge with energy affiliate SK E&S

SINGAPORE (ICIS)–SK Innovation, the parent company of battery maker SK On and petrochemicals producer SK Geo Centric, has agreed to merge with its energy affiliate SK E&S in an overhaul to improve its profitability.

The two companies are merging in a proactive effort to navigate the challenging external business landscape, characterized by a prolonged global economic downturn, increased volatility in the energy and chemical industries, and a slowdown in the electric vehicle (EV) market, SK Innovation said in a statement on 17 July.

“By integrating assets and capabilities across both energy and electrification sectors, the merged company will bolster its core competitiveness and profitability,” it said.

Additionally, the merger aims to secure competitiveness in future energy business areas.

Upon merging, the combined entity will transform into an energy firm with assets totaling Korean won (W) 100 trillion ($72.4 billion) and revenues of W88 trillion, “positioning itself as the largest private energy company in the Asia-Pacific region”, SK Innovation said.

The merged firm will also increase earnings before interest, taxes, depreciation and amortization (EBITDA) to W5.8 trillion, up from pre-merger levels of W1.9 trillion, it said.

The two companies expect that by 2030, the synergies from the integration alone will add over W2.1 trillion to EBITDA, which is targeted to hit W20 trillion by the end of the decade.

“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 [liquefied natural gas], power, and city gas businesses,” SK Innovation said.

The management boards of both SK Innovation and SK E&S approved the proposed merger on 17 July, subject to shareholders’ approval on 27 August.

The merged corporation is expected to be officially launched on 1 November.

“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 [energy storage system] hydrogen, SMR, ammonia, and immersion cooling), energy carriers, and energy solutions,” SK Innovation said.

“Currently, global oil majors are also currently pursuing balanced portfolios across the energy sector through various mergers and acquisitions.”

SK Innovations’ business portfolio includes petrochemicals, lubricants, and oil exploration.

It is now diversifying into future energy sectors such as electric vehicle batteries, small modular reactors (SMR), ammonia, and immersion cooling.

SK E&S was spun off from SK Innovation in 1999 as a city gas holding company and is transitioning into a green portfolio that organically integrates its four core businesses – city gas, low-carbon LNG value chain, renewable energy, and hydrogen and energy solutions, to create synergies.

Separately, SK On’s board has approved a merger with sister companies – crude oil and petroleum products trading firm SK Trading International and energy logistics firm SK Enterm to improve raw material purchasing efficiency and expand trading, helping improve SK On’s profit structure.

“Through the merger of these three companies, SK On will be able to further strengthen its competitiveness in securing raw materials

($1 = W1,380)