SK Group's headquarters in Seoul / Korea Times file

SK Group is facing a backlash from employees of SK Innovation and SK E&S over the planned merger of the two energy affiliates, which is partially intended to support the money-losing battery unit SK On, according to industry officials, Tuesday.

Unionized workers of SK Innovation started picketing in front of the business group's headquarters in Seoul this week to protest the abrupt decision, which had not been disclosed to the refiner's employees in advance.

They are expressing concerns about their job security and welfare benefits after the planned merger.

Workers of SK E&S are worried about the possible decline in their performance-based bonuses, as well as the possible sale of subsidiaries supplying natural gas in metropolitan areas.

Given that KKR holds around 3 trillion won ($2 billion) worth of redeemable convertible preference shares (RCPS) in SK E&S, fears are growing over the possibility of the gas supplier selling its subsidiaries, such as Kangwon City Gas and Chungcheong Energy Service, to the private equity firm to avoid repaying its debt with cash.

"SK E&S will fall apart to save SK On," the SK E&S union wrote on a banner hanging in front of the business group's headquarters.

"We totally oppose our company's merger with SK Innovation."

SK Innovation explained that each affiliate's employees will continue receiving different amounts of performance-based bonuses next year, based on the current system.

SK E&S is also said to be trying to convince KKR to allow the city gas operator to extinguish the existing RCPS, so that SK Innovation can issue RCPS to the U.S. investment firm under the same conditions.

"Our top executives are set to meet the employees to explain the details about the merger plan," an SK Innovation spokesman said.

"Management was unable to inform the employees of the merger plan in advance, due to a confidentiality clause."

Amid the deepening feud, credit rating agencies here and overseas anticipated that the proposed merger of the two SK affiliates will contribute to enhancing their stability and financial soundness.

"The announced merger of SK Innovation and SK E&S will be credit positive for the former if completed," Moody's Ratings said in a recent report.

"SK Innovation's absorption of SK E&S' business will enhance SK Innovation's scale, business diversity and operational stability. Pro forma for the transaction and based on its 2023 financials, SK Innovation's revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will increase by 14 percent and 48 percent, respectively, as a result of the merger."