SKT Chooses Demerger Method... Shares Governance Restructuring Benefits

Receive New Corporation Shares Equal to Existing SK Telecom Holdings
Human Split as Initially Expected
Enhancing Competitiveness by Separating Telecom and Non-Telecom Sectors

Park Jung-ho, CEO of SK Telecom, presenting management performance and vision to shareholders at the 37th regular general meeting of shareholders [Image source=Yonhap News]

[Asia Economy Reporter Cha Min-young] SK Telecom, which is undertaking a corporate governance restructuring for the first time in 37 years, has chosen a spin-off that allows minority shareholders to share in the benefits. Instead of a physical spin-off, which favors major shareholders, the decision was made to share the gains from increased corporate value with minority shareholders in line with the broader goal of 'enhancing shareholder value.'

On the 14th, SK Telecom announced that it will proceed with a spin-off into the existing company, 'AI & Digital Infrastructure Company,' and a newly established company, 'ICT Investment Specialist Company.' The existing company will have telecommunications affiliates such as SK Broadband under it, while the new company will serve as SK Group's intermediate holding company, overseeing non-telecommunications affiliates.

A spin-off involves establishing a new company with the same shareholder composition. Since shareholders of the original company own shares in the new company equally, if an SK Telecom shareholder held 100 shares before, they would hold 100 shares each in both the existing and new companies after the spin-off. The newly established company created through the spin-off typically undergoes a trading suspension followed by a relisting process. In most cases, the combined corporate value of the new and existing companies exceeds that of the original company before the spin-off.

In contrast, a physical spin-off is a vertical division where the existing company owns 100% of the new company’s shares. This structure allows the existing company to exercise control over the new company, and existing shareholders only hold shares in the existing company. Minority shareholders’ share value is diluted by the business value of the new company. This structure benefits major shareholders.

SK Telecom also decided not to adopt the so-called 'modified form of spin-off' previously suggested by some. This scenario involved SK Telecom placing only SK Hynix under the new intermediate holding company and later having SK Corporation absorb the intermediate holding company through a merger. The plan was to change SK Telecom’s entire governance structure to lift investment restrictions on SK Hynix under the Fair Trade Act. This raised concerns among minority shareholders.

Instead, SK Telecom chose a spin-off dividing subsidiaries into telecommunications and non-telecommunications sectors. Under the ICT Investment Specialist Company, which serves as the intermediate holding company, non-telecommunications affiliates including SK Hynix and the New ICT sector (media, security, commerce) will be placed, while the AI & Digital Infrastructure Company will focus on the telecommunications sector. Regarding rumors of a merger between the new company and SK Corporation, SK Telecom took a firm stance, stating, "There are no merger plans."

SK Telecom plans to sequentially make specific decisions related to the governance restructuring within the first half of this year. When a listed company is split, the existing company typically continues with a changed listing, while the new company pursues a listing.

Choi Nam-gon, a researcher at Yuanta Securities, commented, "The spin-off is just the first step in the revaluation of SK Telecom, not the conclusion. The more important task ahead is to generate business performance in the non-telecommunications sector and gain investor consensus, which is entirely the company’s responsibility."

This content was produced with the assistance of AI translation services.