[Edaily Reporter Kim Hyung-il ] SK Innovation(096770)is set to merge with SK ie technology(361610)(SKIET)—which it spun off in 2019—for the first time in seven years, leaving some 330,000 minority shareholders to shoulder the burden. SKIET raised over 80 trillion won in subscription deposits in 2021 and went public in May of that year at an offering price of 105,000 won. However, the decision to merge was made following a sustained decline in the stock price due to poor performance in the separator business and repeated attempts to sell the company. The merger price is 14,783 won, which is merely one-seventh of the initial public offering price.

According to the securities industry on the 26th, SK Innovation announced on the 25th that it would merge with SKIET through an absorption merger. The merger ratio is 0.1174540 SK Innovation common shares for every 1 SKIET common share, and the merger effective date is January 1 of next year.

SKIET has 335,222 small shareholders, accounting for 99.9% of all shareholders. The shares they hold total 25,126,335, representing 30.72% of all issued shares. Since the vast majority of shareholders are small investors, the change in value resulting from this merger will inevitably have a direct impact on individual investors.

SKIET garnered significant market anticipation when it went public in 2021. The subscription ratio for institutional investors reached “1,883 to 1,” and the subscription period for retail investors saw a record-breaking approximately 80.9 trillion won in margin deposits. However, after rising to 249,000 won during trading on July 26, 2021, the stock price fell repeatedly, dropping to 11,840 won this past July. The merger valuation is set at 14% of the initial public offering (IPO) price.

SKIET’s separator business has continued to struggle due to a slowdown in the electric vehicle market and increased supply from Chinese competitors. In the first quarter of this year, the capacity utilization rate dropped to about 20%, and the company proceeded with a restructuring of its production bases, including the sale of its Chinese production facilities and the suspension of operations at the Jeungpyeong plant.
An industry official stated, “Contrary to the initial goal of increasing the enterprise value of the growth business—which was spun off and listed separately through a corporate split—both the stock price and business conditions have significantly deteriorated.”

As a result of this merger, shareholders of both SK Innovation and SKIET will face different burdens. SKSecurities analyzed that the burden on existing SK Innovation shareholders would not be significant, but estimated that assuming SKIET’s value to be zero, the impact on SK Innovation’s fundamentals would be approximately -2.7%. It also projected that the dilution of existing shareholders’ stakes due to the issuance of new shares for the merger would be about 2.6%. In fact, SK Innovation plans to issue 4,481,300 new shares as part of the merger, representing approximately 2.6% of the total issued shares.

Conversely, SKIET shareholders will receive SK Innovation shares in exchange at a value 85.9% lower than the initial public offering price. Notably, SK Innovation’s stock price also plummeted following the merger announcement. On that day, SK Innovation closed at 111,200 won, down 13,800 won (11.04%) from the previous trading day. Based on the merger ratio, the value of SK Innovation shares to be received for each SKIET share—calculated using that day’s closing price—is approximately 13,058 won. As SK Innovation’s stock price has fallen since the merger valuation was determined, the market value of the shares SKIET shareholders will receive has also decreased.

SK Innovation also faces the burden of equity dilution resulting from the issuance of new shares and the restructuring of underperforming businesses. The company plans to consolidate its organization and functions, integrate research and development (R&D), and expand its customer base by linking with SK On’s energy storage system (ESS) business. It has set a target of improving earnings before interest, taxes, depreciation, and amortization (EBITDA) by approximately 60 billion won annually and returning to positive EBITDA within two years. SK Innovation maintains that this merger will secure financial stability and proactively mitigate business and financial risks.

An analyst at a credit rating agency stated, “We viewed SKIET with concern because it lacked the financial resilience to survive in the short term,” adding, “It was a situation where the company could only continue operations with some form of support from SK Innovation.”