SK Innovation will absorb SK IE Technology (SKIET), its battery separator subsidiary, bringing the struggling business back under direct control five years after its market debut.

The two companies said Tuesday that their boards had approved the merger, citing the goals of strengthening SKIET's financial stability, streamlining operations and improving the long-term competitiveness of the separator business.

Under the terms of the deal, SK Innovation will remain the surviving company and issue new shares to SKIET shareholders. Each SKIET common share will be exchanged for 0.117454 SK Innovation share, a ratio calculated from the companies' recent market prices in accordance with South Korea's capital markets law.

SK Innovation's board and SKIET shareholders are scheduled to approve the transaction on Nov. 24. The merger takes effect Jan. 1, 2027, and the new SK Innovation shares are set to list Jan. 18.

Because the transaction qualifies as a small-scale merger for SK Innovation — meaning the new shares to be issued fall below the 20 percent threshold for listed companies under South Korea's Commercial Act — its shareholders will not vote on the deal or receive appraisal rights. SKIET will follow the standard merger process.

The move effectively reverses SK Innovation's 2019 spinoff of its materials business. SKIET listed on the Kospi in May 2021, when demand for lithium-ion battery separators was surging alongside the global electric vehicle market. Separators are the thin porous membranes, typically made of polyethylene or polypropylene, placed between a battery's anode and cathode to prevent short circuits while allowing lithium ions to pass through, making them a key component of battery safety and performance. SKIET also produces ceramic-coated separators, which are used to raise the heat resistance of EV batteries.

The business environment has since deteriorated amid slowing EV growth, delayed demand recovery in North America and intensifying price competition from Chinese manufacturers, which together supply the largest share of the global separator market. The pressure extends across SK Innovation's battery value chain: the company, South Korea's largest oil refiner, also owns EV battery maker SK On, which has been posting operating losses amid the same demand slump, and parent SK Group has been restructuring affiliates and selling assets to shore up its balance sheet. SK Innovation said the downturn has limited SKIET's ability to improve profitability, generate cash and raise funds independently, making integration more advantageous than retaining it as a separate company.

Following the merger, SK Innovation plans to reduce overlapping and financing costs while combining its research capabilities with SKIET's product development expertise. The company will also explore growth areas such as separators for energy storage systems, one of the fastest-growing outlets for lithium-ion batteries as renewable power deployment expands.

"The merger will strengthen financial stability and streamline the business structure," an SK Innovation official said.