To Strengthen LNG Value Chain
POSCO Holdings, the holding company of the POSCO Group, is considering a merger between POSCO International and POSCO Energy in a move to strengthen its liquefied natural gas (LNG) value chain.
POSCO Holdings is conducting a corporate value evaluation to calculate the merger ratio of POSCO International and POSCO Energy. The merger process is expected to be completed within 2022.
The combination of the two companies is likely to take the form of POSCO International, which is a listed company, absorbing POSCO Energy, which is not listed. POSCO Holdings is the largest shareholder of POSCO International with a 62.9 percent stake, and owns the entire stake in POSCO Energy, excluding treasury stocks.
If the merger is wrapped up, POSCO will be able to enjoy synergies by integrating the two companies' LNG business value chains. POSCO International is in charge of the group's LNG trading business, including the operation of the LNG gas field in Myanmar. POSCO Energy operates Gwangyang LNG Terminal and Incheon LNG-fired power plant.
The key to a successful merger is the merger ratio. As POSCO Holdings is the largest shareholder of both companies, a conflict of interest may arise in promoting the merger.
Another problem is that shareholders of POSCO Holdings may have different views on the merger. If POSCO International’s corporate value is overestimated, POSCO Holdings’ stake in the merged entity may be diluted. POSCO has asked Samil PwC to calculate the fair values of the two companies.