Shares of SK IE Technology (361610), or SKIET, fell sharply for a second straight session ahead of its merger with SK Innovation (096770). The decline reflects profit-taking after the stock hit its daily upper limit, along with selling by shareholders concerned that the exchange value under the merger ratio remains below the current share price.
SKIET closed the previous regular session at 16,680 won, down 1,540 won, or 8.45%, from the prior trading day, according to the Korea Exchange on the 29th. The stock had surged to a closing price of 19,960 won on Aug. 26, touching its daily upper limit, before falling more than 8% in each of the following two sessions. It dropped as low as 16,420 won during intraday trading on the 28th.
The swings in SKIET's share price are tied to the merger with SK Innovation. On the 25th, the boards of SK Innovation and SKIET each approved plans to proceed with the combination. Under the structure, SK Innovation will absorb SKIET as the surviving entity, with a merger ratio set at 1 to 0.1174540. That means a shareholder holding one SKIET common share will receive 0.11 SK Innovation common shares.
The issue is that SKIET's exchange value under the merger ratio remains below its share price. Based on SK Innovation's closing price of 116,900 won on the 28th, the exchange value of one SKIET share works out to roughly 14,028 won. That is below SKIET's closing price, meaning the value recognized in the merger is lower and shareholders could face losses.
Analysts also said the merger will not be entirely positive for shareholders. Joo Min-woo, an analyst at NH Investment & Securities, said in a report the previous day that the merger "left SKIET shareholders disappointed in terms of timing," adding that "SKIET's earnings and industry conditions are expected to recover from next year, so the merger is proceeding at the moment when the company's corporate value is at its cheapest."
