SK Innovation will absorb its battery separator subsidiary SK IET (SKIET). SKIET posted a 211.4 billion won net loss last year, and the company judged that if separator supply wavers it could disrupt production at battery subsidiary SK On. SK Innovation disclosed on Aug. 25 that its board resolved the merger.

According to the filing, SK Innovation will be the surviving company and SKIET the disappearing company, and the merger will be a small-scale merger. The merger ratio is 1 to 0.1174540, meaning a holder of 1 SKIET common share will receive 0.1174540 SK Innovation common shares.

The merger prices were set at 125,862 won for SK Innovation and 14,783 won for SKIET. The amount was calculated by taking Aug. 24, the day before the board resolution date, as the base date and averaging the volume-weighted average closing prices for the most recent 1 month and 1 week and the most recent closing price. The company said it applied neither a premium nor a discount. Corporate value calculated by multiplying these prices by total shares outstanding is 21.28 trillion won for SK Innovation and 1.21 trillion won for SKIET.

New shares to be issued by SK Innovation will total 4,481,300, about 2.6 percent of total shares issued. SK's stake as the largest shareholder will fall to 50.74 percent from 52.09 percent, but the largest shareholder will not change. SK Innovation is already the largest shareholder of SKIET with a 53.35 percent stake. The merger date is Jan. 1, 2027, and the new shares are scheduled to be listed on Jan. 18, 2027.

The background to the merger includes SKIET's financial condition. On a consolidated basis at the end of 2025, SKIET's total assets were 4.39 trillion won and total liabilities were 1.79 trillion won. In the same period, revenue was 261.8 billion won and net loss was 211.4 billion won, with losses exceeding revenue.

SK Innovation said in the filing: "Before the merger, if the financial instability of the disappearing company continued, separator supply disruptions could occur, creating risks such as disruptions to SK On's battery production." The company directly mentioned that losses at a subsidiary could spread to the group's overall battery business.

It also wrote that the immediate financial effect after the merger would be negative. It said that as SKIET's non-controlling interests are attributed to SK Innovation, the impact of the disappearing company's net loss could expand in the short term and the negative effect on profit attributable to controlling shareholders could grow. It changed the structure so SK Innovation shareholders bear all the losses previously shared by SKIET minority shareholders. It was presented as a choice to block supply risk in the group's battery business while accepting a short-term accounting burden.

◆ Replacing a shareholders meeting with a board resolution... variable is notice of opposition

SK Innovation will replace a shareholders meeting for merger approval with a board resolution, and the board meeting is scheduled for Nov. 24. Dissenters' appraisal rights will not be granted to shareholders of the surviving company.

The variable is notice of opposition. If shareholders holding at least 20 percent of SK Innovation's total issued shares object in writing within 2 weeks from the merger notice date, it cannot proceed as a small-scale merger. The period for receiving notices of opposition is Sept. 9 to 23. In that case, it will be converted to a formal merger procedure under Article 522 of the Commercial Act.

Conditions on the SKIET shareholder side also apply. Under Article 15 of the merger agreement, if the amount of SKIET shareholders' appraisal rights exceeds 350.0 billion won, the two companies can, by mutual agreement, terminate the contract or change the merger terms. Approval of the merger at SKIET is a matter for a special resolution at a shareholders meeting, and the merger could fall through if it fails to obtain support of at least two-thirds of voting rights present and at least one-third of total issued shares.

There is also a remaining procedural schedule. The period for creditors to file objections runs from Nov. 24 to Dec. 24. In connection with overseas merger filings, SK Innovation said it plans to submit a filing to Vietnam's competition authority. In South Korea, mergers between a parent and its subsidiary are excluded from domestic merger filing requirements under the Fair Trade Act.

After the merger, SK Innovation's proposed response is to restructure its cost structure. It plans to cut administrative costs by integrating management functions that had been duplicated under a separately listed company, and to focus research and development and operating resources on core businesses. It also said it expects to lower interest costs based on SK Innovation's creditworthiness.

On the business side, it set out a direction to expand sales of separators for energy storage systems (ESS). An ESS is equipment that stores power and supplies it when needed, and is cited as a market that can support separator demand while the recovery in the electric vehicle market is delayed. SK Innovation said it expects that if the recovery in the electric vehicle market and the expansion of the ESS separator business proceed together, it will contribute to further profitability improvement.