Biggest shake-up in two decades looms for South Korea’s SK Group after deals spree
SEOUL - SK Group has a problem: the second-biggest conglomerate in South Korea is too big after a US$21 billion (S$28.5 billion) acquisition spree.
Chairman Chey Tae-won is meeting top executives controlling US$240 billion worth of assets from artificial-intelligence chip supplier, to mobile carrier and battery maker, on June 28. The results may kick off the biggest shake-up of the group since he took over more than two decades ago, analysts said.
A six-year acquisition spree has burdened the group with 170 trillion won (S$167 billion) of debt by one estimate, just when crown jewel SK Hynix and its affiliates are about to embark on record investments to capitalise on AI memory-chip demand. The stakes are personal for Mr Chey too as he needs to find US$1 billion for a divorce settlement. Investors expect a slew of mergers and asset sales.
“It’s looking pretty bad for SK,” said Park Ju-gun, head of corporate research firm Leaders Index. “Every unit under SK went on a wild shopping spree to expand its size in the past six, seven years, and those excessive acquisitions have now made the group unmanageable, while the chairman is engulfed in a divorce.”
Mr Chey will host the meeting by video conference from the US, while cousin Chey Chang-won leads a consultative committee called SK Supex. Reorganising the portfolio and seeking “quality growth” will be the key agenda, SK said in a statement on June 27.
The executives will also discuss how to improve the battery and biotechnology businesses among others in the two-day retreat. Mr Chey controls about 18 per cent of SK Inc., which directs more than 200 SK firms through a web of cross-shareholdings. The group’s foundation is traced back to 1953.
Market expectations for a restructuring have been growing since the Seoul High Court ordered 63 year-old Mr Chey to pay the country’s biggest-known divorce settlement last month. SK Inc.’s stock surged by more than 20 per cent over two days after the judgment on bets the company will boost its stock price to help the chairman.
“The biggest issue for the entire SK affiliates, I think, is how they can come up with the chairman’s divorce bill payment,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global in Singapore.
Among the possible deals for the 20 listed companies in the group is a merger between energy-related units SK Innovation and SK E&S. Combining them will help shore up the balance sheet of loss-making battery maker SK On, which is owned by SK Innovation.
Selling off assets at SK Innovation, or looking for cornerstone investors before attempting to list SK On may be other options, according to Shin Hoyong, a senior credit analyst at NICE Investors Service.
That will bring in cash after a series of failed attempts for initial public offerings of units such as 11Street. The group has spent a net 29 trillion won on deals, while also investing 148 trillion won to build up manufacturing capacity for chips and electric-vehicle batteries in the past six years, NICE Investors estimates.
SK Inc. has been one of the nation’s most acquisitive companies with the highest number of affiliates, which doubled in the past six years, according to the Korea Fair Trade Commission. The dealmaking spree though has led in some cases to units competing against each other, Mr Shin said.
“It’s a good news for minority shareholders that the group is financially restructuring and restructuring its governance,” said Roh Jongwon, chief investment officer at Infinity Global Asset Management. “If the shareholder value is increased, Chey can split a smaller portion out of his stock holdings to his estranged wife.” BLOOMBERG