Biggest Shakeup in Two Decades Looms for SK After Deals Spree
(Bloomberg) -- SK Inc. has a problem: the second-biggest conglomerate in South Korea is too big after a $21 billion acquisition spree.
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Chairman Chey Tae-won is meeting top executives controlling $240 billion worth of assets from artificial-intelligence chip supplier, to mobile carrier and battery maker, Friday. 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 ($123 billion) worth of liabilities by one estimate, just when crown jewel SK Hynix Inc. and its affiliates are about to embark on record investments to capitalize on AI memory-chip demand. The stakes are personal for Chey too as he needs to find $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 in Seoul. “Every unit under SK Inc. 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.”
Chey will host the meeting by video conference from the US, while cousin Chey Chang-won leads a consultative committee called SK Supex. Reorganizing the portfolio and seeking “quality growth” will be the key agenda, SK said in a statement on Thursday.
The executives will also discuss how to improve the battery and biotechnology businesses among others in the two-day retreat, SK said. Chair Chey controls about 18% 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 Chey to pay the country’s biggest-known divorce settlement last month. SK Inc.’s stock surged by more than 20% 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 PTE. in Singapore.
Among the possible deals for the 20 listed companies in the group is a merger between energy-related units SK Innovation Co. and SK E&S Co. Combining them will help shore up the balance sheet of loss-making battery maker SK On Co., which is owned by SK Innovation.
Shares of SK Inc. rose about 4%, while those of SK Innovation jumped more than 6% on Friday.
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 Co.
Local media have reported on other potential deals, including the sale of a company private jet. Seoul Economic Daily also said Thursday that the group is seeking a merger of SK Square Co. and SK Networks Co. SK denied the report, saying it has never considered such a deal.
That will bring in cash after a series of failed attempts for initial public offerings of units such as 11Street Co. 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, 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 in Seoul. “If the shareholder value is increased, Chey can split a smaller portion out of his stock holdings to his estranged wife.”
--With assistance from Shinhye Kang.
(Updates with share price moves and SK’s response to media report.)
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