Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Douglas Research Advisory

Event-Driven

<ul>
<li>On 17 July, SK Innovation (096770 KS) officially announced a merger with SK E&amp;S. The merger ratio between SK Innovation and SK E&amp;S has been set at 1 to 1.1917417.</li>
<li>We believe this is the wrong timing for this merger from SK Innovation's point of view. SK Innovation is trading at near three year lows.</li>
<li>This merger is likely to generate backlash from KKR which holds SK E&amp;S redeemable convertible preferred stock (RCPS) worth 3.1 trillion won.</li>
</ul>


On 17 July, SK Innovation (096770 KS) officially announced a merger with SK E&amp;S. The merger ratio between SK Innovation and SK E&amp;S has been set at 1 to 1.1917417.
We believe this is the wrong timing for this merger from SK Innovation's point of view. SK Innovation is trading at near three year lows.
This merger is likely to generate backlash from KKR which holds SK E&amp;S redeemable convertible preferred stock (RCPS) worth 3.1 trillion won.


SK Innovation's Merger with SK E&S: Bad Timing for SK Innovation and Higher Risks from RCPS

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

<ul>
<li>The merger ratio, not as unfavorable to SK Innovation as feared, shows SK Group acting cautiously amid political and regulatory scrutiny.</li>
<li>SK Inc.'s stake will drop to mid-60s; the 1.2x merger ratio for SK E&amp;S could positively affect SK Innovation's stock price short-term.</li>
<li>Persuading KKR is crucial. SK E&amp;S won't convert ₩3T in RCPS or grant appraisal rights, potentially leading KKR to consider litigation, a significant risk to the merger.</li>
</ul>


The merger ratio, not as unfavorable to SK Innovation as feared, shows SK Group acting cautiously amid political and regulatory scrutiny.
SK Inc.'s stake will drop to mid-60s; the 1.2x merger ratio for SK E&amp;S could positively affect SK Innovation's stock price short-term.
Persuading KKR is crucial. SK E&amp;S won't convert ₩3T in RCPS or grant appraisal rights, potentially leading KKR to consider litigation, a significant risk to the merger.


SK Innovation & SK E&S Merger Official Disclosure: Unexpected Merger Ratio

<ul>
<li>SK Innovation (096770 KS) and SK E&amp;S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.</li>
<li>If this merger is successful, it would create the eighth largest company in Korea with a combined assets of 106 trillion won (US$77 billion). </li>
<li>Although the merger ratio is not yet available, we believe that this potential merger could potentially benefit SK E&amp;S and SK Inc but could be negative on SK Innovation.</li>
</ul>


SK Innovation (096770 KS) and SK E&amp;S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.
If this merger is successful, it would create the eighth largest company in Korea with a combined assets of 106 trillion won (US$77 billion). 
Although the merger ratio is not yet available, we believe that this potential merger could potentially benefit SK E&amp;S and SK Inc but could be negative on SK Innovation.


SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

<ul>
<li>Interest in this merger is emerging from an unexpected angle, especially regarding the merger ratio's fairness. There's a risk it could unfavorably affect SK Innovation's stock price.</li>
<li>SK Innovation at ₩108,000/share; SK E&amp;S at ₩290,000/share based on strong profits. SK plans ratios around 1.3x total value and 2.7x per share. SK Inc may reach mid-70% stake post-merger.</li>
<li>SK Innovation's stock may face short-term decline. Securing shareholder approval, with SK Inc at 36%, overseas investors 22%, local institutions 15%, local retail 20%, and NPS 7%, poses challenges.</li>
</ul>


Interest in this merger is emerging from an unexpected angle, especially regarding the merger ratio's fairness. There's a risk it could unfavorably affect SK Innovation's stock price.
SK Innovation at ₩108,000/share; SK E&amp;S at ₩290,000/share based on strong profits. SK plans ratios around 1.3x total value and 2.7x per share. SK Inc may reach mid-70% stake post-merger.
SK Innovation's stock may face short-term decline. Securing shareholder approval, with SK Inc at 36%, overseas investors 22%, local institutions 15%, local retail 20%, and NPS 7%, poses challenges.


SK Innovation & SK E&S: Summary of the Controversy Surrounding the Merger Ratio

<ul>
<li>SK Group plans to merge SK Innovation and 90%-owned SK E&amp;S by month-end. Chosun Ilbo's report solidifies market confidence due to its credibility and likely intentional leak by SK Group.</li>
<li>Initially considered but deemed lower priority than SK IE Technology sale; SK Group opts for this alternative due to challenging market conditions for SKITE sale.</li>
<li>SK Innovation and SKIET rise with hopes of resolving liquidity issues and avoiding sacrifice. SK Inc is negatively impacted by concerns over valuation double counting from this merger.</li>
</ul>


SK Group plans to merge SK Innovation and 90%-owned SK E&amp;S by month-end. Chosun Ilbo's report solidifies market confidence due to its credibility and likely intentional leak by SK Group.
Initially considered but deemed lower priority than SK IE Technology sale; SK Group opts for this alternative due to challenging market conditions for SKITE sale.
SK Innovation and SKIET rise with hopes of resolving liquidity issues and avoiding sacrifice. SK Inc is negatively impacted by concerns over valuation double counting from this merger.


Digging into Chosun Ilbo's Report on SK Group's SK Innovation & SK E&S Merger Plans

South Korea

S-Oil Corporation refines crude oil and sells petroleum and its related products.  The Company mainly focuses on petroleum refining, petrochemical, and lubricant business. S-Oil's major products are gasoline, bunker oil, kerosene, naphtha, lubricants, benzene, toluene, and xylene.

GS Holdings is a holding company, which operates subsidiaries including GS Caltex Oil, GS Power, GS Home Shopping, GS Retail, and GS Sports.

HD Hyundai Co.,Ltd. operates as a oil refining company. The Company provides crude oil refining, petroleum refinery, and other related products. HD Hyundai markets its products worldwide.

SK Gas Ltd imports, stores, and distributes liquefied petroleum gas (LPG). The Company supplies its products mainly to domestic market for household, the transportation industry, and petrochemical products manufacturers.

Hankook Shell Oil Co., Ltd. manufactures and markets lubricants, grease, and other petroleum products used for cars, vessels, industrial machinery, and cutting tools.  The Company exports its products to Southeast Asian countries, Russia, and China.  Hankook Shell is an affiliate of Royal Dutch Shell Group.

Heunggu Oil Co. Ltd. distributes petroleum products through its network of gasoline and liquefied petroleum gas (LPG) stations.

Mi Chang Oil Industrial Co., Ltd. refines, produces, and distributes lubricants used in industrial machinery, ships, and automobiles.  The Company also produces rubber processing oil for rubber products manufacturing and insulating oil for electrical properties.

JC Chemical Co., Ltd, manufactures biofuels including biodisel and other byproducts derived from bioenergy source.

Joong Ang Enervis Co., Ltd. distributes petroleum products.  The Company operates a network of gasoline and liquefied petroleum gas (LPG) stations. Joong Ang Enervis' products include gasoline, kerosene, lubricating oil, and low sulfur diesel.

Keystone Global is in coal business selling its coal to steel producers. The Company also operates smartcard business which offers the smartcard with IC chips embedded.

Idemitsu Kosan Co., Ltd. explores, imports, refines, and distributes petroleum and its related products.  The Company also manufactures and sells petrochemical products.

Huolinhe Opencut Coal Industry Corporation Limited of Inner Mongolia is mainly involved in the production and selling of coal in China.

Huolinhe Opencut Coal Ind Corp Ltd. (002128 CH)

Washington H. Soul Pattinson & Company Limited is an investment holding company. The Company owns shares and properties, coal mining, bulk handling, commercial television licensee, telecommunications carrier, merchant banking, funds management, pharmaceutical retailing, manufacture, processing and marketing of biscuits and cakes.

Washington H. Soul Pattinson and Co. Ltd (SOL AU)

PT Adaro Energy Tbk is a coal mining company. The Company and its subsidiaries currently deal in coal mining and trade, coal infrastructure and logistics, and mining contractor services.

Shanxi Xishan Coal & Electricity Power Co., Ltd. mines and processes coal. The Company also generates electric power.

Range Resources Corporation is an independent oil and gas company  that explore, develops, and acquires oil and gas properties. The Company conducts operations primarily in the Southwestern, Appalachian and Gulf Coast regions of the United States.

Shanxi Lu'an Environmental Energy Development Co., Ltd. mines, processes, and markets low sulfur high quality coal. The company also researches and develops coal and environment protection related technologies.

Shanxi Lu'An Environmental Energy Dev.Co (601699 CH)

Kunlun Energy Company Ltd, through its subsidiaries, explores and produces crude oil and natural gas in China.

Antero Resources Corporation explores, develops, and produces oil and natural gas. The Company focuses on the acquisition, development, and production of unconventional oil and liquids-rich natural gas properties. Antero Resources serves customers in the United States.

PDC Energy, Inc. produces and distributes petroleum products. The Company produces, develops, explores and markets crude oil, natural gas, and natural gas liquids. PDC Energy operates in the United States.

SK Innovation Co., Ltd. refines, markets, and distributes oil.  The Company produces a variety of petroleum products, such as gasoline, kerosene, liquefied petroleumgas (LPG), and diesel oil.  SK Energy also manufactures petrochemical p roducts, including paraxylene, synthetic resins, styrene monomer, and ethylene.

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SK Innovation (096770 KS)

SK Innovation's Merger with SK E&S: Bad Timing for SK Innovation and Higher Risks from RCPS

This merger between SK Innovation and SK E&S is likely to be value-destroying from SK Innovation's viewpoint. It is also likely to generate...

Douglas Kim

SK Innovation & SK E&S Merger Official Disclosure: Unexpected Merger Ratio

This post outlines the official disclosure of the merger between SK Innovation and SK E&S, highlighting the unexpected merger ratio.

Sanghyun Park

SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

SK Innovation (096770 KS) and SK E&S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.

Douglas Kim

SK Innovation & SK E&S: Summary of the Controversy Surrounding the Merger Ratio

This post summarizes the controversies surrounding the anticipated merger ratio between SK Innovation and SK E&S, which may potentially...

Sanghyun Park

Digging into Chosun Ilbo's Report on SK Group's SK Innovation & SK E&S Merger Plans

This post investigates Chosun Ilbo's exclusive report on the SK Innovation and SK E&S merger plans, likely to be announced at SK Group's highest...

Sanghyun Park

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