SK Telecom's 'major surgery': starts with SK Stoa after KRW 1 trillion cash bleed

[Korea Financial Times, Jeong Chaeyun] SK Telecom (CEO Ryu Young-sang) has moved to sell non-core asset SK Stoa as losses from the USIM hacking incident accumulate. As SK Telecom restructures its business around telecommunications and artificial intelligence (AI) dual pillars, attention focuses on whether this transaction will lead to the first home shopping industry merger and acquisition (M&A) in 18 years.

According to industry sources on the 23rd, SK Telecom is reportedly negotiating with prospective buyers for SK Stoa. SK Stoa officially announced commencement of the sale process through an internal email under CEO Yang Maeng-seok's name on the 15th.

CEO Yang stated: "A prospective acquirer has emerged and we have begun review. Employment stability and treatment succession will be our top priorities."
SK Stoa originated from Btv Shopping, the data home shopping business division of SK Broadband in 2015. It became independent through physical division in December 2017, and SK Telecom acquired 100 percent stake in 2019, incorporating it as a wholly owned subsidiary.

SK Stoa specialises in interactive broadcast home shopping based on digital TV. Building on SK Telecom's telecommunications infrastructure and customer base, the company quickly established itself as the number one player in data home shopping within the home shopping market, which grew rapidly during COVID-19.

SK Stoa increased operating profit from KRW 1.4 billion in 2019 to KRW 20.8 billion in 2020 and KRW 25 billion in 2021. SK Stoa's growth momentum continued through 2022, when sales recorded KRW 329.3 billion.

From 2023, as the overall home shopping industry downturn and intensified market competition converged, SK Stoa's operating profit, which had increased during the COVID-19 windfall, decreased significantly to only KRW 100 million. Fortunately, last year the company succeeded in structural improvement, recording sales of KRW 302.3 billion and operating profit of approximately KRW 8.1 billion.

Behind SK Stoa's solid performance lies adoption of various AI technologies. Since last year, SK Stoa has begun leaping toward AI commerce to transcend data home shopping limitations. Early this year, the company launched an AI Commerce Task Force.

Despite SK Stoa's performance improvement, SK Telecom chose to sell due to accumulated spending burden. SK Telecom is estimated to have incurred total expenditures of approximately KRW 1.5848 trillion from the USIM hacking incident that occurred in April.

Specifically, anticipated costs include: USIM replacement and dealer loss compensation of KRW 250 billion, proprietary customer compensation plan of KRW 500 billion, proprietary information protection measures of KRW 700 billion, Personal Information Protection Commission penalty of KRW 134.8 billion, and penalty fee exemptions (amount undisclosed).

An SK Telecom official stated: "It is difficult to specify total expenditures precisely. It is comprehensive and intertwined with financial circumstances, making it difficult to break down specifically how much was spent in which areas."

Securities firms project SK Telecom's third-quarter operating profit at KRW 23.8 billion, down approximately 96 percent from the same period last year (KRW 533.3 billion). While funds spent on USIM replacement and dealer loss compensation were reflected in the second quarter, the Personal Information Protection Commission penalty is expected to impact through the third quarter.

SK Stoa's sale price is expected between KRW 100 billion and KRW 200 billion. Final acquisition negotiators reportedly include small department store operators, multiple TV home shopping operators, and retail platform companies.

If this sale materialises, it will mark the first home shopping merger and acquisition (M&A) in 18 years since Lotte Shopping acquired then-Woori Home Shopping (now Lotte Home Shopping) in 2007. The sale decision is scheduled for the end of next month.

SK Telecom is expected to invest funds secured from selling SK Stoa and restructuring non-core businesses into new ventures. Choi Chang-won, chairman of SK SUPEX Council, is also known to have strongly directed non-core asset restructuring.

Indeed, SK Telecom is restructuring its business structure around telecommunications and AI dual pillars. Early this year, SK Telecom integrated the MNO Business Division, B Wireline and Media Business Division, and Enterprise Business Division into the 'Telecommunications Business Competitiveness Enhancement Sector'.

Subsequently, the company categorised the Adot Business Division, GPAA (Global Personal AI Agent) Business Division, AIX Business Division, and AI DC (Data Centre) Business Division into the 'AI Business Execution Enhancement Sector'.

An industry insider stated: "Once this sale completes, considerable changes in the home shopping market landscape are expected depending on the acquiring entity. However, given that home shopping is a declining industry and competition is intensifying from e-commerce, live commerce, and social media-based commerce beyond home shopping, we believe the sale outcome must be monitored until the end."

Jeong Chaeyun (chaeyun@fntimes.com)