SK Innovation absorbs its battery-materials unit as SK Square returns cash

SK Innovation will absorb its battery-materials subsidiary, SKIET, in a small-scale merger that hands SKIET holders 0.1174540 SK Innovation shares for each share they own and issues 4.481 million new shares, or about 2.6 percent of the enlarged company. Both boards approved the plan on Aug. 25, and the corrected disclosure landed on Aug. 28.

The valuation behind the ratio puts SK Innovation at 125,862 won ($95) a share and SKIET at 14,783 won ($11), figures built from each company's weighted average closing prices over the past month and week and the latest close, as required under capital markets rules.

SKIET is the smaller party, but it carries the reason for the deal. Its first-half revenue of 75.4 billion won ($56.9 million) came entirely from lithium-ion battery separators, and it posted a 137 billion won ($103 million) operating loss over the same six months. Slowing electric-vehicle growth, delayed demand recovery in North America and price competition from Chinese entrants have left the separator business short of the cash it needs to fund itself.

The structure reflects that. SK Innovation, as the surviving company, can use a small-scale merger, which skips the separate appraisal-rights process for its own shareholders and lets board approval stand in for a vote. SKIET holders get the ordinary route: a shareholder meeting and appraisal rights, with a buyback price of 14,620 won ($11) a share, objections accepted from Sept. 9 to Sept. 23, payment due by Dec. 30. The outside appraiser, Ahnjin Accounting, works from Oct. 1 to Oct. 27, testing valuations that the filing puts at 116,424 won to 137,880 won ($88 to $104) for SK Innovation and 10,649 won to 16,617 won ($8 to $13) for SKIET.

SK Innovation expects the combination to save 61 billion won ($46.1 million) a year: 10.1 billion won ($7.63 million) from folding together organisations and functions, 18.6 billion won ($14 million) from lower financing costs, 23.7 billion won ($17.9 million) from a leaner business structure and 9.2 billion won ($6.95 million) elsewhere. SKIET brings 4.39 trillion won ($3.32 billion) of assets and 1.79 trillion won ($1.35 billion) of liabilities, and SK's stake in SK Innovation slips from 52.1 percent to 50.7 percent.

Production is already being pulled toward Poland. SKIET runs lines in Jeungpyeong in North Chungcheong Province, Changzhou in China and Silesia in Poland, with 1.4 billion square metres of capacity at the end of June, and is selling the Chinese subsidiary and halting the Jeungpyeong plant.

A company official said the merger is meant to strengthen financial stability and streamline the business structure so the separator unit can compete over the longer term. SK Innovation's own portfolio is still dominated by oil, which took 64 percent of first-half revenue, against 9 percent for batteries.

The shareholder meeting is set for Nov. 24, the merger date for Jan. 1 and listing of the new shares for Jan. 18.

On the same day the outside appraiser's window was set, SK Square disclosed that its subsidiary SK Hynix will buy back 20 trillion won ($15.1 billion) of its own shares, split evenly between shareholder value and employee stock compensation. The purchases run from Aug. 29 to Jan. 28 next year, capped daily at 25 percent of the average trading volume over the past month — 864,904 shares, a tighter limit than either the 10 percent of the disclosed volume or the 1 percent of shares outstanding would allow.