Uncertainties remain with regards to benefits of acquisition


The acquisition of Hynix Semiconductor, the world’s No. 2 memory chip maker, will consolidate SK Group’s position as Korea’s third-largest conglomerate and add momentum to its growth.

In growing to be the country’s third-largest conglomerate, SK Group has developed petrochemicals and telecommunications businesses as the pillars that support the group.

In the 1970s, about 20 years after SK Group’s foundations were laid, the conglomerate branched out into the petrochemicals sector and in 1991, the group completed establishing a vertically integrated structure for its petrochemicals operations.

Also in the early 1990s SK Group added the mobile carrier SK Telecom to its operations, and for much of its history the company has been the country’s largest mobile carrier.

However, with the domestic market for telecom services becoming saturated, SK Group, SK Telecom in particular, has been losing some of its momentum.

By bringing Hynix into its fold, the group is looking for renewed drive and to reduce its reliance on the domestic market for revenues.

In addition, inclusion of Hynix will bring about a shift in its revenue structure, with the chipmaker taking up 9.9 percent of the conglomerate’s overall sales.

In terms of assets, Hynix will boost that of SK Group by more than 16 percent.

Once the Hynix deal is complete, SK Group’s assets will rise to about 113.1 trillion won ($100.4 billion) from the 97 trillion won recorded at the end of last year, widening the lead over LG Group.

At the end of 2010, LG Group’s total assets were valued at 90.6 trillion won.

While the conglomerate seems confident of the benefits of acquiring the world’s second largest memory chip maker, the deal is not without uncertainties.

The U.S.-based ratings agency is reported to be reviewing SK Telecom’s ratings a possible downgrade as the acquisition could be partly “debt funded.”

Developments in the memory chip market and the industry’s requiring large investments at regular intervals are also casting shadows on SK Telecom.

While some in the industry project that DRAM prices have hit the bottom, it remains unclear when positive changes will be seen.

In addition, the two firms operations considered to have little synergy, and Hynix’s inclusion will expose SK Telecom to global economic changes, to which the company has not been fully exposed to until now.

“The synergy effect gained by investing in the semiconductor business, which has little connection to telecommunications, will be insignificant. In addition, as the semiconductor industry is sensitive to changes in the economy, there is a large variability in profits,” Korea Investment and Securities Co. analyst Yang Jong-in said in a report published in July.

By Choi He-suk (cheesuk@heraldcorp.com)