Pursuit of Sizing-up Strategies
The author is an analyst of KB Securities. He can be reached at goun.whang@kbfg.com. -- Ed.
SK materials to be absorbed into SK Inc.
— SK materials announced in its disclosure on Aug 20 that it would be absorbed into SK Inc. (SK), the investment and holding company of SK Group. SK materials shareholders will receive 1.578 new shares of SK for each share of SK materials common stock they own (merger price: KRW416,670). Shareholders’ meeting for the approval of the merger plan is to be held on Oct 29, dissenting shareholders’ exercise of appraisal rights (expected purchase price: KRW415,751) from Oct 29 through Nov 18, and completion of the merger on Dec 1. While the merger may fall through in the event the exercise of appraisal rights by dissenting shareholders exceeds KRW800.0bn, such possibility should be limited (SK materials’ shareholder composition: SK 49.1%, treasury shares 15.1%, National Pension Service 6.4%, others 29.4%). Following the announcement, the market showed a mixed reaction—with shares in SK rising 4.4% in after-hours trading, while SK materials fell 0.2%. Considering SK materials’ current share price, merger price, and the expected purchase price upon the exercise of appraisal rights by dissenting shareholders, we believe large fluctuations in share price to be unlikely.
Positive impact from SK’s pursuit of sizing-up strategies anticipated
— In its business strategy (“Financial Story”) presentation back in March, SK had revealed its goal of achieving EBITDA of KRW2.7tn for its semiconductor materials business and becoming the world’s No. 1 materials producer by 2025. SK materials has until now realized growth on the back of small-scale M&A and JV transactions, but the latest move may allow for larger-scale activity. As of 2Q21, the number of quarterly M&As deals signed by semiconductor materials manufacturers has reached a record high since 2018—indicating continued inorganic growth among global semiconductor materials companies. We interpret such sizing-up efforts as intended to reduce the impact of fluctuations in investments by downstream industries as well as R&D costs, which continue to rise every year.