SK Group to Restructure: Asset Sales or Mergers

As reported by Reuters, South Korea's SK Group will convene a two-day strategic meeting starting this Friday to discuss streamlining its operations and prioritizing key areas such as artificial intelligence, semiconductors, and batteries. Over the past decade, SK Group has expanded significantly, leading to a bloated corporate structure. Its electric vehicle battery subsidiary, SK On, has incurred multi-billion-dollar losses, and last year, the group’s primary profit driver, SK Hynix, also faced substantial losses, further straining the group’s financial health.

According to the Korea Fair Trade Commission, SK Group, the second-largest conglomerate in South Korea, had 219 affiliated companies as of May, the highest among the country’s 88 business groups. In comparison, Samsung Group, the largest conglomerate by assets, has 63 affiliated companies, and Hyundai Motor Group has 70.

Following the resignation of four senior executives late last year, SK Group has been considering restructuring. Insiders reveal that the upcoming meeting will include top executives from both the parent company and its affiliates, exploring various options, including mergers and divestitures.

An SK Group spokesperson stated that the review of its business operations is a "routine management activity" aimed at better adapting to "the ever-changing business environment, including geopolitical issues."

Sources suggest that SK Innovation, which owns South Korea’s largest refinery and battery manufacturer SK On, is expected to merge with SK E&S, a company related to natural gas, to support the heavily loss-making SK On. SK Innovation has indicated it is considering various strategies, including mergers, to enhance competitiveness but has not yet made any final decisions.

Since being spun off from SK Innovation at the end of 2021, SK On has not achieved profitability. As of the end of March, its cumulative operating loss was approximately 2.3 trillion won ($1.7 billion), with a debt-to-equity ratio of 188%.

However, analysts believe that SK Group views the battery business as a long-term growth area and is therefore attempting to reduce investments in other sectors to support SK On.

According to The Korea Economic Daily, SK Group might also merge SK EcoPlant, a construction company, with SK Materials' industrial gases division. Both companies responded that they were unaware of such discussions.

Additionally, SK Networks, whose business includes smartphone sales and hotel management, announced last week that it would sell its car rental division to private equity firm Affinity Equity Partners for 820 billion won. An SK Group spokesperson added that the group is also negotiating to sell its 9% stake in Vietnam's Masan Group to SK Networks.