SK Inc. has an issue: South Korea’s second-largest conglomerate is just too big after a wave of takeovers value $21 billion.
On Friday, Chief Executive Officer Chey Tae-won will meet with top executives who control $240 billion value of assets – from the unreal intelligence chip supplier to the cell phone operator and battery maker. The results could usher in the most important restructuring of the group since he took over greater than 20 years ago, analysts say.
A six-year acquisition spree has saddled the group with 170 trillion won ($123 billion) of debt, by one estimate, just as crown jewel SK Hynix Inc. and its subsidiaries are making record investments to capitalize on demand for AI memory chips. That can be at stake for Chey, who must work out the way to 1 billion US dollars for a divorce settlement. Investors expect a series of mergers and asset sales.
“It’s looking pretty bad for SK,” says Park Ju-gun, head of the market research company Leaders Index in Seoul. “Every unit of SK Inc. has gone on a wild buying spree over the past six or seven years to increase its size. These excessive acquisitions have now made the group uncontrollable, while the CEO is embroiled in a divorce.”
Chey will chair the meeting via video conference from the U.S., while cousin Chey Chang-won will head an advisory committee called SK Supex. Reorganizing the portfolio and pursuing “qualitative growth” can be the principal topics, SK said in a press release on Thursday.
Executives can even discuss the way to improve the battery and biotechnology businesses through the two-day meeting, SK said. Chairman Chey controls about 18 percent of SK Inc., which runs greater than 200 SK firms through a network of cross-shareholdings. The group was founded in 1953.
Market expectations for a restructuring have risen for the reason that Seoul Supreme Court sentenced 63-year-old Chey to change into the best-known Divorce agreement last month. SK Inc. shares rose greater than 20% inside two days of the decision on bets that the corporate will boost its stock price to assist the chief executive.
“The biggest problem for all SK subsidiaries, in my opinion, is how to pay the chairman’s divorce costs,” said Jung In Yun, chairman of Fibonacci Asset Management Global PTE. in Singapore.
Possible deals for the group’s 20 listed firms include a merger of energy-saving units SK Innovation Co. and SK E&S Co. The merger is predicted to assist bolster the balance sheet of loss-making battery maker SK On Co., which SK Innovation owns.
Other options could include selling assets at SK Innovation or finding anchor investors before SK On’s IPO, based on Shin Hoyong, a senior credit analyst at NICE Investors Service Co.
Local media also reported other possible deals, including the sale of one in all the corporate’s private jets. Seoul Economic Daily also reported on Thursday that the group was in search of a merger of SK Square Co. and SK Networks Co.
This will bring money to the group after a series of failed IPOs by firms comparable to 11Street Co. According to estimates by NICE Investors, the group has spent a net 29 trillion won on transactions over the past six years and in addition invested 148 trillion won in increase production capability for chips and batteries for electric vehicles.
SK Inc. is one in all the country’s most acquisition-friendly firms, with the very best variety of subsidiaries, which has doubled prior to now six years, based on the Korea Fair Trade Commission. But the deal hype has in some cases led to the business units competing with one another, Shin said.
“It is good news for minority shareholders that the group is restructuring its finances and leadership,” said Roh Jongwon, chief investment officer at Infinity Global Asset Management in Seoul. “If shareholder value increases, Chey will be able to sell a smaller portion of his shareholding to his estranged wife.”
