As SK Innovation decides to absorb and merge with its subsidiary SK IET, minority shareholders are expected to suffer massive losses due to the sharply fallen stock price compared to the public offering price.
The SK Group entered the energy business by acquiring Daehan Yugongsa during its earlier period as Sunkyung Group. Subsequently, it expanded its business aggressively, acquiring Hyundai Semiconductor (now SK Hynix) with funds from SK Telecom. Currently, SK Group has grown into a large conglomerate with various affiliates in key business areas such as energy, telecommunications, and semiconductors.
Subsequently, in 2021, it spun off SK On, its battery business division. These subsidiaries attempted to reorganize their business structure by raising external funds through initial public offerings (IPOs) after their physical spin-offs.
This structure, where a subsidiary that spun off to pursue independent business is reincorporated into the parent company, has sparked growing interest in the market regarding its background and impact on shareholders.
These funds were primarily planned to be used for investments to expand its secondary battery business. Securing a large amount of capital through the IPO raised expectations for growth in the secondary battery market.
The stock price, which was 105,000 won at the IPO, has continuously fallen to the 10,000 won range. Since its listing, it has consistently shown a downward curve, failing to meet investors' expectations.
Many of these are long-term holders who invested at the IPO price or at peak prices, and they are now expected to suffer massive losses due to the sharp drop in stock price and the merger decision.
This effectively means that SK IET shareholders will become SK Innovation shareholders. In other words, existing SK IET shareholders will transition from being shareholders of an independent company to shareholders who have invested in a specific business division of the parent company.
In contrast, the secondary battery business was classified as an eco-friendly industry, allowing it to benefit from green bond issuance, government subsidies, and preferential interest rates. The goal was to increase the efficiency of fundraising by separating such eco-friendly businesses.
Due to insufficient cash flow performance, SK Innovation had to continuously inject funds by purchasing subsidiary shares with its own capital. In particular, they struggled with profitability improvements due to a disadvantage in technology and labor costs compared to companies like China's CATL. This poor performance is believed to be the background for the absorption merger.
Currently, SK Innovation holds over 50% of SK IET's shares, and including private equity fund stakes, it secures a total ownership of over 60%. This ownership structure makes it difficult for minority shareholders, no matter how united, to exercise voting rights to overturn the merger decision. In reality, the merger is highly likely to proceed unilaterally according to the major shareholder's will.
If a shareholder holds fewer than 9 SK IET shares, those shares will be settled in cash (refunded). However, it is pointed out that the refund price is likely to be significantly lower than the IPO peak, making substantial losses for minority shareholders unavoidable.
This dominant ownership allows the major shareholder to have absolute influence over key management decisions, including mergers, leaving minority shareholders in a difficult position to assert their rights.
Furthermore, the parent company has a 53% stake. So, other shareholders are in a situation where they can't say a word.
While the company is demanding that shareholders become SK Innovation shareholders, this result is completely different from their original investment direction, leading to strong opposition from shareholders.
SK IET garnered market expectations by presenting a new future growth engine for the SK Group through its secondary battery separator business. Many investors invested in the company based on its vision for the secondary battery and separator business, but there is strong skepticism about becoming part of SK Innovation, a petrochemical company, again due to this merger. This results in a significant change in the initial investment purpose and business direction.
However, since SK Innovation already holds a majority stake, and with the second largest shareholder combined, they hold over 60% of the shares, the merger proposal is highly likely to pass at the general meeting of shareholders. There is a high probability that the merger will proceed despite opposition from minority shareholders.
This SK IET merger situation could further highlight the necessity of such legislation.
In contrast, the U.S. often sets prices based on the 52-week high, protecting investors who purchased at high points within a year. As a result, Korean minority shareholders are bound to suffer significant losses if a merger is decided when stock prices have plummeted, leading to growing dissatisfaction among current SK IET shareholders.
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