A Merger Between SK On and SK Enmove + A Massive 8 Trillion Won in Capital Raise

• On 30 July, SK Innovation (096770 KS) announced that it plans to merge its subsidiaries SK On and SK Enmove. The merged company will be launched on 1 November.

• SK Group has announced a massive 8 trillion won capital raise plan involving this deal including paid-in capital increase of 2 trillion won for SK Innovation and SK On each.

• We provide three major reasons why we are negative on this merger/capital raise.

3 Major Reasons Why We Are Negative on This Merger/Capital Raise

1) We believe that this massive capital raise (8 trillion won in total) is likely to cause concerns about share dilution for the existing shareholders of SK Innovation (096770 KS).

2) This merger between SK On and SK Enmove is being conducted from a position of weakness, not strength. This means twofold.

• First, SK On has not proved itself in generating meaningful improvements in profits. Plus, it trails the domestic market leaders including LG Energy Solution and Samsung SDI in the rechargeable battery sector. SK On has accumulated huge amount of net losses in the past several years and it has yet to show that it can generate meaningful economies of scale leading to profits.

• Second, SK Enmove's profitability has been deteriorating as well. SK Enmove's operating margin declined from 17.3% in 2023 to 13.5% in 2024 and 10.3% in 1Q 2025. The continued decline in sales and profit margins of SK Enmove could lead to further investors' concerns on the combined company.

3) Timing of This Massive Capital Raise Amid Weak Capital Markets - SK Group is trying to complete this massive capital raise this year amid weak capital markets. Although KOSPI is up more than 30% YTD, the overall capital markets of raising new capital remains relatively weak. This is also likely to negatively impact this merger/capital raise by the SK Group affiliates.

Finally, although SK Innovation has decided to merge SK On and SK Enmove for now, we believe that SK On could be split again around 2028-2029 if indeed its results improve materially by then. If SK On's rechargeable battery business improves again, SK Innovation may try to IPO SK On once again around 2029-2030. From SK Innovation's shareholder perspective, another split of SK On in 3-4 years may not be viewed positively by many investors.