South Korea’s biggest conglomerates are stepping up restructuring efforts as competition from China intensifies and US tariff threats loom.
Industrial groups with interests in steel, petrochemicals, retail, semiconductors and electric vehicle batteries have merged or sold off business units to streamline operations and raise cash.
The number of mergers and acquisitions in South Korea increased from 817 in 2023 to 930 last year, with their value rising from $50.8bn to $68.3bn, according to Dealogic.
Financiers and analysts said many of the deals were driven by restructuring efforts that were likely to accelerate this year as companies respond to US President Donald Trump’s protectionist trade policies and economic conditions in South Korea deteriorate.
“The restructuring and M&A going on in Korea is being driven primarily by a defensive mindset as a result of the Korean economy facing significant difficulties and headwinds,” said Jaewoo Lee, managing partner of the Seoul office of US corporate law firm Ropes & Gray.
“These economic headwinds are leading to a bearish outlook from Korean companies, with many in a batten-down-the-hatches kind of mode.”
SK Group, South Korea’s second-largest conglomerate by assets, reduced the number of its business units from 716 to 660 in the first nine months of 2024, selling its car rental, speciality gas and polyurethane subsidiaries to private equity buyers.
“As the global geopolitical environment changes fast, we are trying to choose the right businesses and focus on them in order to invest more in future growth areas” including artificial intelligence, the group said, adding that its restructuring had helped improve profitability.
Steel giant Posco sold 45 of its unprofitable and non-core businesses last year “to invest in growth areas”, while chemicals-to-retail group Lotte said it planned to sell non-core assets including overseas chemical units and a cash machine business “to improve our financial status as domestic spending slumps and the population shrinks”.
Manufacturing jobs and research and development investment sentiment are at a 12-year low, according to official data and a survey by the Korea Industrial Technology Association, while exports in the first two months of 2025 fell 4.7 per cent against a year earlier. Analysts said the EV, petrochemicals and construction sectors were in a downturn, with companies struggling to attract investors to their bond sales.
South Korea’s central bank last week cut its projection for GDP growth in 2025 to 1.5 per cent, down from a forecast of 2.3 per cent a year ago. Governor Rhee Chang-yong cited Trump’s tariff threats while announcing a quarter-percentage point cut to the benchmark interest rate.
The US president has pledged to impose 25 per cent levies on steel and aluminium imports and hinted at duties on cars and chips, all key South Korean exports. He has also called for rolling back subsidies for EV purchases and repealing regulations on car emissions.
Park Ju-geun, head of corporate research group Leaders Index, said SK Group in particular was wrestling with the fallout from disappointing EV sales in Europe and the US. Its portfolio includes EV battery maker SK On and chipmaker SK Hynix, which produces the high-bandwidth memory products used in Nvidia’s AI chips.
“SK’s restructuring is being driven principally by a business rationale, as it pivots to focus on the opportunities from AI while also mobilising money from other units to rescue SK On,” said Park.
He added that US tariffs would compound the problems caused by a surge in Chinese exports, which have hit South Korea’s steel, petrochemicals and ecommerce sectors.
Spooked by the rise of memory chip company CXMT and AI start-up DeepSeek, South Korean business leaders are also fretting over their country’s declining competitiveness against China in critical technologies such as semiconductors, South Korea’s leading export.
South Korean technology groups lagged their Chinese counterparts in R&D spending by more than $150bn in 2023, up from a gap of $9bn a decade earlier, according to the Federation of Korean Industries.
Last week, FKI chair Ryu Jin warned that “the golden time to revive our growth engine is running out” as he called on lawmakers to provide more support for the country’s chip industry.
Wi Jong-hyun, business professor at Chung-Ang University in Seoul, said it was “worrisome” that Samsung, the country’s largest business group, was not among the conglomerates engaged in restructuring. Its 22 affiliates suffered a combined 23 per cent drop in market capitalisation last year.
But others noted that unlike highly diversified conglomerates such as SK Group, Samsung’s fate depends largely on the performance of a single company — its $266bn chips and smartphones business Samsung Electronics — making the case for a wider group restructuring less pressing.
Samsung Electronics said it was expanding investment in growth areas including robots, AI and biotech. “We are focusing on strengthening our fundamental business competitiveness from a long-term perspective,” the company said in a statement.
Lee of Ropes & Gray stressed “it would be wrong to characterise” the latest wave of restructuring “as some kind of fire sale”.
“Private equity buyers have plenty of dry powder, and the number of attractive businesses coming on to the market is still relatively limited, all of which is driving competition and decent prices for sellers,” said Lee.
“Companies are getting good valuations for the assets they are putting on the market, and they are pulling deals when they are not happy with the price,” he added. “They are anxious, but they are not desperate.”