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Chairman Chey’s ‘Deep Change’ in Full-Scale Implementation
SK’s Business Restructuring
Chairman Chey’s ‘Deep Change’ in Full-Scale Implementation
  • By Michael Herh
  • March 3, 2017, 03:00
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The SK Group is speeding up restructurings of its subsidiaries through the “choice and focus” strategy.
The SK Group is speeding up restructurings of its subsidiaries through the “choice and focus” strategy.


The SK Group is speeding up restructurings of its subsidiaries. Through the “choice and focus” strategy, the group is decisively giving up business items overlapped among subsidiaries or poorly performing businesses while developing new business items that can be used as future growth engines. Analysts say that “Deep Change” emphasized by SK Group chairman Chey Tae-won, is coming true as innovation in corporate culture and business structure.

On February 2 this year, SK Networks decided to transfer its LPG charging business and tangible assets at charging stations to Pine Street Asset Management and SK Gas for 310.2 billion won (US$263.6 mllion). In the new business structure, SK Networks sells its directly operated 49 refueling stations to a fund set up by Pine Street Asset Management and SK Gas leases and runs the refueling stations instead of the fund. 

The sell-off of the charging stations was the second major sell-off deal since SK Networks sold its entire fashion business with six fashion brands including Tommy Hilfiger to the Hyundai Department Store Group at the end of last year. SK Networks, which already took over Tong Yang Magic, said that the sale aimed to strengthen its financial soundness and secure investment resources.

SK Innovation, the SK Group's flagship company, expressed its intention to reorganize its business through an amendment to its Articles of Incorporation. While reducing the number of its 33 projects to 21, SK Innovation integrated 13 overlapped projects into six, adding the biopharmaceutical business and new and renewable energy production business, which Chey chose as future growth engines as new business items. On top of that, SK Corporation, the holding company of the group, added machinery and equipment manufacturing and leasing to its business objectives.

It is said that the SK Group's reorganization of its business structure is a result of Chey’s strong criticism of inefficiency in group management. In a CEO seminar in October of last year, "Unless we change, we can face a sudden death," chairman Chey said. “We ought to recheck what we are doing now” In fact, chairman Chey expressed dissatisfaction with the sluggishness of SK Group’s affiliates, pointing his finger at ROE and PBR as examples. ROE shows how much profit is made compared to an amount invested, and PBR is an index showing how high the price of a stock is compared to the company's net assets. The higher the two indicators are, the better the company is performing. If the two items are low, it means that profit is small compared to invested capital so the managerial efficiency is low.

SK Networks recorded ROE of only 2.9 in 2015 although the company recently showed the most active restructuring. SK Innovation, which chalked up the highest-ever earnings, posted ROE of 5.3 in 2015. SK Innovation hopes to see an improvement in its ROE but the truth is its ROE is lower than those of rival companies. SK Telecom's ROE, which was 12.9 in 2014, dropped to 10.2 in 2015 and SK Hynix’s ROE is ​​also on the skids.

Experts say that a restructuring of the SK Group’s corporate governance can be realized with a change in its business structure. After some change is made in SK Group affiliates’ business, the group may spend proceeds from selling off its minor affiliates on strengthening on its corporate governance or securing funds by listing SK Holding’s unlisted companies. "The SK Group's governance structure is simple compared to those of other groups," said a representative of the Korean business world. “Some people say that a full-scale reorganization of the governance structure may begin in May or June."