SK, CJ shed core assets as economic uncertainty looms

SK to divest specialty gas unit, CJ to offload bio business

Illustrated by Kim Sung-gyu

Even before the Trump-led economic uncertainties take full effect, South Korea’s mergers and acquisitions (M&A) market is witnessing a wave of restructuring deals by large conglomerates. In an unusual shift, companies are divesting highly profitable businesses that contribute significantly to sales and profits in addition to non-core businesses.

SK Group, the second-largest conglomerate in Korea, is eyeing to sell SK Specialty, the world’s leading producer of specialty gases for semiconductors, for around 4 trillion won ($2.9 million). CJ CheilJedang’s bio division, which accounts for 30% of its operating profit, is expected to be offloaded for around 6 trillion won.

This proactive restructuring comes as South Korea braces for economic headwinds. Even before the International Monetary Fund (IMF) lowered the country’s annual economic growth forecast for next year from 2.2% to 2.0% on Nov. 20, local conglomerates had anticipated a prolonged downturn and began reorganizing their businesses to secure funds.

Experts point to a combination of challenges driving these efforts: a stagnant economy, China’s aggressive low-cost export strategy in key industries like steel, petrochemicals, and batteries, and the potential for tighter trade restrictions following the U.S. presidential election. “We expect to see significant restructuring, including the sales of core and non-core businesses, mergers, and staffing adjustments for the foreseeable future,” said an industry insider.

The sale of SK Specialty highlights this trend. A wholly-owned subsidiary of SK Inc., the company produces semiconductor specialty gases, including nitrogen trifluoride (NF3) and tungsten hexafluoride (WF6), for which it holds the top global market share. Last year, SK Specialty reported solid earnings with 681.7 billion won in sales and 147.1 billion won in operating profit. SK Hynix and other SK Group affiliates accounted for roughly 30% of its sales.

But SK Group has decided to sell SK Speciality to fund large-scale semiconductors and artificial intelligence (AI) investments. “SK is letting go of highly profitable businesses to secure the funds needed for its ambitious plans,” said a source familiar with the matter. The group plans to invest 80 trillion won in AI and semiconductors by 2026.

CJ CheilJedang, the country’s leading food company, is also preparing to divest its core bio division valued at around 6 trillion won ($4.3 billion). Last year, the bio division reported 4.143 trillion won in revenue and an operating profit of 251.3 billion won, accounting for 23% of its total sales and 30% of its operating profit. The division up for sale is the green bio division, which produces feed additives and seasoned foods.

Although the business is profitable, the division faces mounting pressure from low-cost Chinese competitors. Analysts believe CJ aims to raise cash for future acquisitions, as it did in 2018 when it sold its pharmaceutical arm (CJ Healthcare) and later acquired Schwan’s Company, the second-largest frozen food maker in the U.S.

The Korean M&A market has already seen several large-scale transactions in the second half of this year, with deals worth trillions of won. LG Display sold its Guangzhou production unit for 2 trillion won, while Samsung SDI divested its polarizing film division for 1.21 trillion won, both to Chinese companies.

These sales underscore the changing business landscape. Chinese companies, once latecomers emulating Korean technologies, have rapidly closed the gap and now compete aggressively with lower prices. Consequently, Korean companies are increasingly selling businesses once deemed core.

[Lee Jung-gu]

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