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NPS to veto Korean Air's acquisition of Asiana Airlines

Jan 05, 2021 (Gmt+09:00)

The National Pension Service, the No. 2 shareholder of Korean Air Lines Co., will vote against the flag carrier’s plan to acquire Asiana Airlines Inc. for $1.6 billion, which the pension fund warned could undermine shareholder value.

The NPS veto planned for a Jan. 6 shareholders meeting, however, is unlikely to block the two carriers' combination, with other major institutional shareholders in Korean Air supporting their merger, according to industry sources.

The world's third-largest pension scheme holds an 8.11% stake in Korean Air, after Hanjin KAL and family members, who control 31.13% of the airline as of the end of 2020. Its employee shareholders own a combined 6.39%, and Credit Suisse 3.75%. 

A committee advising on the NPS’ exercise of shareholder rights decided on Tuesday to oppose Korean Air’s plan to change its articles of association aimed at facilitating its acquisition of Asiana Airlines.

Of the nine members on the committee, five opposed the change, with one casting a blank ballot. By contrast, the three other members expressed support, saying the tie-up could improve their dominant position at home and enhance competitiveness, which should increase shareholder value in the medium to long term.

To finance the purchase of Asiana, Korean Air is planning to raise 2.5 trillion won ($2.3 billion) through a rights offering. To do so, it has to change its articles of association to increase the number of its outstanding shares from the current 250 million. That requires approval by two-thirds of its voting shareholders.

Its planned rights issue will likely result in the issuance of additional 173.6 million shares to a total of 350 million shares.

In addition to the risk of undermining shareholder value, the advisory committee pointed out flaws in Korean Air's decision-making process, including not conducting due diligence on Asiana Airlines and failing to stipulate in the acquisition agreement that problems to be placed on Asiana would lead to a cancellation of their contract.  


Korean Air saw NPS’ decision as unlikely to threaten the acquisition deal. But in a statement issued in response to the NPS committee’s decision, the airline said it will do its utmost to persuade shareholders to support the acquisition.

Last month, the Seoul Central District Court cleared the way for the merger between Korean Air and Asiana Airlines, rejecting an injunction filed by a Korean activist fund that threatened their combination.

Korean Air’s main creditor Korea Development Bank has not responded to the NPS's decision which the industry sources saw as unexpected.

“Korean Air’s purchase of Asiana Airlines was sort of a government-led restructuring decided at a relevant ministers’ meeting,” said a senior government official. “We have not expected the NPS committee to express opposition to it.”

Last October, NPS vetoed LG Chem Ltd.’s plan to split off its battery business, against proxy advisors’ recommendations to support the spin-off. But the plan won support from a majority of shareholders.

"Like their opposition to LG Chem’s spin-off plan on the vague grounds that shareholder value could be undermined, this decision is hard to understand as well,” said an investment banking source.

Meanwhile, Korea Corporate Governance Service, NPS’ official proxy adviser for domestic stock investments, has expressed support for the two carriers' merger. By contrast, Institutional Shareholder Services (ISS), the world's top proxy adviser from which NPS sought only a recommendation for the Korean Air deal, opposed their tie-up, according to the sources.

Write to Jung-hwan Hwang and Kyung-Min Kang at

Yeonhee Kim edited this article.

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