Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Douglas Research Advisory

Event-Driven

<ul>
<li>SK Innovation (096770 KS) and SK E&amp;S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.</li>
<li>If this merger is successful, it would create the eighth largest company in Korea with a combined assets of 106 trillion won (US$77 billion). </li>
<li>Although the merger ratio is not yet available, we believe that this potential merger could potentially benefit SK E&amp;S and SK Inc but could be negative on SK Innovation.</li>
</ul>


SK Innovation (096770 KS) and SK E&amp;S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.
If this merger is successful, it would create the eighth largest company in Korea with a combined assets of 106 trillion won (US$77 billion). 
Although the merger ratio is not yet available, we believe that this potential merger could potentially benefit SK E&amp;S and SK Inc but could be negative on SK Innovation.


SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

<ul>
<li>Interest in this merger is emerging from an unexpected angle, especially regarding the merger ratio's fairness. There's a risk it could unfavorably affect SK Innovation's stock price.</li>
<li>SK Innovation at ₩108,000/share; SK E&amp;S at ₩290,000/share based on strong profits. SK plans ratios around 1.3x total value and 2.7x per share. SK Inc may reach mid-70% stake post-merger.</li>
<li>SK Innovation's stock may face short-term decline. Securing shareholder approval, with SK Inc at 36%, overseas investors 22%, local institutions 15%, local retail 20%, and NPS 7%, poses challenges.</li>
</ul>


Interest in this merger is emerging from an unexpected angle, especially regarding the merger ratio's fairness. There's a risk it could unfavorably affect SK Innovation's stock price.
SK Innovation at ₩108,000/share; SK E&amp;S at ₩290,000/share based on strong profits. SK plans ratios around 1.3x total value and 2.7x per share. SK Inc may reach mid-70% stake post-merger.
SK Innovation's stock may face short-term decline. Securing shareholder approval, with SK Inc at 36%, overseas investors 22%, local institutions 15%, local retail 20%, and NPS 7%, poses challenges.


SK Innovation & SK E&S: Summary of the Controversy Surrounding the Merger Ratio

Equity Bottom-Up

<ul>
<li>In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 3Q 2024.</li>
<li>Of the 38 pair trades, 21 of them involved holdcos outperforming opcos in the past six months, suggesting increased capital allocation to Korean holdcos relative to their opcos.</li>
<li>These pairs could generate trading opportunities in terms of their pricing gaps closing reversal (Doosan Corp vs. Doosan Enerbility; Hyundai Mobis vs Hyundai Motor).</li>
</ul>


In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 3Q 2024.
Of the 38 pair trades, 21 of them involved holdcos outperforming opcos in the past six months, suggesting increased capital allocation to Korean holdcos relative to their opcos.
These pairs could generate trading opportunities in terms of their pricing gaps closing reversal (Doosan Corp vs. Doosan Enerbility; Hyundai Mobis vs Hyundai Motor).


Korean Holdcos Vs Opcos Gap Trading Opportunities in 3Q 2024

<ul>
<li>Starting 24 July, there will be a mandatory pre-announcement requirement for block deal sales in Korea. </li>
<li>In other words, the major shareholders of the Korean companies need to report publicly prior to their actual sales of their stakes in these companies through block deal sales.</li>
<li>The potential block deal sales candidates could continue to underperform on average the companies that are selling these stocks in potential block deal sales in the next several weeks. </li>
</ul>


Starting 24 July, there will be a mandatory pre-announcement requirement for block deal sales in Korea. 
In other words, the major shareholders of the Korean companies need to report publicly prior to their actual sales of their stakes in these companies through block deal sales.
The potential block deal sales candidates could continue to underperform on average the companies that are selling these stocks in potential block deal sales in the next several weeks. 


Mandatory Block Deal Pre-Announcement Requirement in Korea Starting 24 July: Impact on Block Deals

<ul>
<li>SK Group plans to merge SK Innovation and 90%-owned SK E&amp;S by month-end. Chosun Ilbo's report solidifies market confidence due to its credibility and likely intentional leak by SK Group.</li>
<li>Initially considered but deemed lower priority than SK IE Technology sale; SK Group opts for this alternative due to challenging market conditions for SKITE sale.</li>
<li>SK Innovation and SKIET rise with hopes of resolving liquidity issues and avoiding sacrifice. SK Inc is negatively impacted by concerns over valuation double counting from this merger.</li>
</ul>


SK Group plans to merge SK Innovation and 90%-owned SK E&amp;S by month-end. Chosun Ilbo's report solidifies market confidence due to its credibility and likely intentional leak by SK Group.
Initially considered but deemed lower priority than SK IE Technology sale; SK Group opts for this alternative due to challenging market conditions for SKITE sale.
SK Innovation and SKIET rise with hopes of resolving liquidity issues and avoiding sacrifice. SK Inc is negatively impacted by concerns over valuation double counting from this merger.


Digging into Chosun Ilbo's Report on SK Group's SK Innovation & SK E&S Merger Plans

South Korea

SK Innovation Co., Ltd. refines, markets, and distributes oil.  The Company produces a variety of petroleum products, such as gasoline, kerosene, liquefied petroleumgas (LPG), and diesel oil.  SK Energy also manufactures petrochemical p roducts, including paraxylene, synthetic resins, styrene monomer, and ethylene.

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SK Innovation (096770 KS)

SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

SK Innovation (096770 KS) and SK E&S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.

Douglas Kim

SK Innovation & SK E&S: Summary of the Controversy Surrounding the Merger Ratio

This post summarizes the controversies surrounding the anticipated merger ratio between SK Innovation and SK E&S, which may potentially...

Sanghyun Park

Korean Holdcos Vs Opcos Gap Trading Opportunities in 3Q 2024

In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in...

Douglas Kim

Mandatory Block Deal Pre-Announcement Requirement in Korea Starting 24 July: Impact on Block Deals

According to Seoul Economic Daily, LG Chem has been tapping various institutional investors for a potential block deal sale of about 1 trillion won...

Douglas Kim

Digging into Chosun Ilbo's Report on SK Group's SK Innovation & SK E&S Merger Plans

This post investigates Chosun Ilbo's exclusive report on the SK Innovation and SK E&S merger plans, likely to be announced at SK Group's highest...

Sanghyun Park

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