SK Innovation CEO Park Sang-kyu speaks at a shareholders' meeting at the company headquarters in Seoul, Tuesday. (SK Innovation)

SK Innovation and SK E&S, two major energy affiliates of the country's second-largest conglomerate SK Group, received shareholders’ approval for their merger on Monday, paving the way for the launch of an integrated entity with assets over 100 trillion won ($75 billion).

Some 85.76 percent of the attendees at SK Innovation's extraordinary general shareholders meeting voted in favor of the merger. The merger was approved by SK E&S shareholders, too. SK Inc., the group’s holdings company, owns a 90 percent stake in the unlisted affiliate.

Under the scheme, the two companies will merge into the biggest private energy company in the Asia-Pacific region, with combined assets of over 106 trillion won and annual sales of 88 trillion won, according to SK Innovation.

The merged entity will integrate SK Innovation's petroleum and battery business with SK E&S' renewable energy business that spans from solar to wind power in its portfolio. It will be set for an official launch on Nov. 1.

The integration is part of SK Group’s rebalancing efforts, as the country’s chip-to-energy conglomerate executes a massive reshuffle, streamlining its affiliates to focus on future growth drivers and enhance operational efficiency.

Through the merger, SK Innovation is expected to back up SK On, its battery-making affiliate in need of cash. The battery unit has been logging operating losses for 11 consecutive quarters amid the slowdown of the global electric vehicle market, and SK E&S is a company with abundant cash flow.

“The energy industry is facing new challenges, different from the past. Uncertainties have increased due to high interest rates and prolonged inflation since 2022,” SK Innovation CEO Park Sang-kyu said at the shareholders meeting.

“To respond to uncertainties and establish the foothold of growth, we have decided to merge with SK E&S,” Park said. “With growth in size and competitiveness, we will continue to expand as the top energy company, in not just the Asia-Pacific region but the world.”

The merger with SK E&S will bring an additional 2.2 trillion won in earnings before interest, tax, depreciation and amortization for SK Innovation, spurring the metric to surge to 20 trillion won by 2030, the company said.

Though the National Pension Service, the second-largest shareholder of SK Innovation with a 6.36 percent stake, decided to vote against the merger, citing shareholder values, the merger was nonetheless pushed through.

The pension fund viewed the merger ratio of SK Innovation and SK E&S, set at 1 to 1.1917417, as unfair to SK Innovation shareholders.

Meanwhile, shareholders’ appraisal rights remain a hurdle for the merger. Shareholders who disagree with the merger, including the state-run pension fund, can exercise their appraisal rights to demand the companies purchase their shares until Sept. 19.

If the NPS exercises its appraisal rights for the entire stake it owns in SK Innovation, the company would be required to pay out 681.7 billion won. That amount would account for 85 percent of the 800 billion won drawn up by SK Innovation for the cause.

Other minority shareholders who voted against the merger could exercise their rights to secure profit if the share price of SK Innovation drops during the period. The standard price for appraisal rights is set at 111,943 won, slightly higher than Tuesday's closing price of 109,800 won.

If all shareholders that opposed the merger exercise their appraisal rights, SK Innovation would be on the hook for 922.9 billion won.

Though SK Innovation had initially explained that shareholders' exertion of appraisal rights could affect the merger if the demanded amount surpasses the allocated 800 billion won, Park stressed the company would be able to handle the situation.

“SK innovation holds cash over 1.4 trillion won. The appraisal rights are not at a level that cannot be handled for the time being,” he said. "We expect the exertion of appraisal rights would not surpass the anticipated level."