NPS to vote against SK Innovation, SK E&S merger amid advisor opposition

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NPS to vote against SK Innovation, SK E&S merger amid advisor opposition

Published: 22 Aug. 2024, 17:38 Updated: 23 Aug. 2024, 16:21

SARAH CHEA
chea.sarah@joongang.co.kr

The SK logo shown at an SK office building in Jongno District, central Seoul, where SK Innovation is headquartered [NEWS1]

The National Pension Service (NPS), the second largest shareholder of SK Innovation, has decided to oppose the energy company's proposed merger with SK E&S in line with a series of calls for reconsideration from multiple governance advisors.

The pension service, with a 6.2 percent stake in SK Innovation, announced the decision Thursday, citing worries over the merger "going against shareholder interests."

The NPS is expected to vote against the merger during a shareholder meeting slated for Aug. 27. The state pension fund is the second-largest shareholder of SK Innovation after SK Inc., which holds 36.2 percent.

SK Innovation and SK E&S, a cash cow energy arm, proposed the merger in July, with a ratio of one to 1.2. They aim to create an energy giant with an asset value of 106 trillion won ($77 billion) and combined revenue of 90 trillion won encompassing industries from oil refining to renewable energy and EV batteries.

The NPS' stance comes as major governance advisors have also been urging opposition to the merger over concerns about the negative effects on the interests of shareholders.

The Korea Corporate Governance Forum on Thursday said SK must reconsider the necessity of the merger and the ratio with respect to general shareholders, suggesting five measures to consider including an abstention of voting by SK Inc., the largest shareholder of both affiliates.

It also urged SK to reset its target earnings after the merger as SK initially said the merged entity aims to reach 20 trillion won in earnings before interest, taxes, depreciation and amortization by 2030.

The forum also pointed to SK Group's unstable financial position as the conglomerate with the largest amount of debt as of last year.

"From the governance perspective, the proposed merger is to help poor SK Innovation using assets of SK E&S in order save to money-losing SK On," the forum wrote.

Sustinvest, a local financial advisory firm on corporate governance, also urged institutional investors to oppose the merger considering the unfavorable ratio for shareholders.

The ratio has been set without much consideration for their interests, which will later harm shareholder value in the mid and long term, it said.

In response to the growing concerns, SK Innovation on Thursday opened a website dedicated to offering details about its proposed merger to shareholders.

The website offers answers to the most frequently asked inquiries from shareholders, such as the biggest benefit for investors after the merger and its business strategies and prospects once the move is completed.

Details about the upcoming shareholder meeting are also up on the website.

"The questions listed are based on inquiries we accepted from shareholders for more than two weeks with the goal of clearly resolving their curiosity," SK Innovation said, adding that it is aware of the fact that "the merger is a big agenda item that has a huge influence on share prices."

The website is accessible through both the company's main homepage and the internet portal Naver by simply typing in "SK Innovation."

BY SARAH CHEA [chea.sarah@joongang.co.kr]