SK chemicals Co., South Korean conglomerate SK Group’s chemical unit, will be selling its pharmaceuticals business to local private equity fund (PEF) Glenwood Private Equity Co (Glenwood PE), with the selling price expected to be around 600 billion won ($447.43). SK chemicals aims to tighten its non-core businesses to secure liquidity and focus on its eco-friendly materials business, one of its future growth engines, and recently signed a memorandum of understanding (MoU) to transfer its pharmaceutical business to Glenwood PE for about 600 billion won, according to the investment banking industry on Thursday.

While Glenwood PE is conducting due diligence for the acquisition, the two sides are aiming to sign a stock purchase agreement (SPA) within the year, according to sources, under which the pharmaceutical business of SK chemicals’ Life Science Division will be sold. Once the pharmaceutical business is spun off, Glenwood PE will hold a 100 percent stake in the division. The division sells a number of top products in the field, including pain patch Trast, film-type erectile dysfunction treatment Embix S, and ginkgo biloba blood circulation treatment Ginexin-F. However, there have been calls to divest the division as its profitability is lower than that of the Green Chemical Division, which oversees eco-friendly business.

According to data from the Financial Supervisory Service, the Life Science Division generated annual sales of 770.6 billion won in 2022. Of this, 313.9 billion won came from the pharmaceutical division, while the rest came from subsidiary SK bioscience Co.

The Life Science Division’s annual operating profit was 148.6 billion won last year, down by one-third from 520.2 billion won the year earlier, while the pharmaceutical division’s operating margin fell to 5.8 percent in the second quarter this year from 12.7 percent in the third quarter last year. The company attributed the decline to an increase in selling, general and administrative expenses (SG&A) and a fall in the price of some drugs.

In response, SK chemicals has been reorganizing its business portfolio to focus on its future growth engine, eco-friendly businesses. In 2020, it sold its bioenergy business to PEF Han & Co. for about 380 billion won, and, in 2021, sold polyphenylene sulfide (PPS) facilities and land assets to HDC Hyundai EP Co. for 38 billion won to raise cash.

The SK chemicals pharmaceutical division has long been considered a potential property for sale in the domestic mergers and acquisitions (M&A) market. A number of financial investors and strategic investors including PEF management companies, saw that SK chemicals was going to restructure the division and examined the feasibility of acquiring it from various angles.

Although its current business performance has slightly weakened, the company is still seen to be competitive. Not only does its portfolio include products including Ginexin-F and Joins that are top drugs in their respective fields, but it also continues to develop a pipeline of new drugs. In July, the company signed a contract manufacturing organization (CMO) agreement with global biopharmaceutical company AstraZeneca PLC to supply diabetes drug Sidapvia, which was co-developed by the duo.

The successful bidder, Glenwood PE, is well versed in carve-out transactions, in which the buyer purchases a subsidiary or business unit that has been spun off. It is also in negotiations to acquire polyol subsidiary SK pucore co. from SKC Co., with Glenwood PE expected to utilize its second blind fund for this investment. The fund is also expected to help create synergies with LG Chem Ltd.’s diagnostics division, which it is in the process of acquiring. The deal to acquire LG Chem’s diagnostics division will be closed next month, sources said.

By Kang Doo-soon, Park Chang-young, and Choi Jieun

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