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Airlines

Korean Air feud ends with incumbent’s victory

Apr 02, 2021 (Gmt+09:00)

Hanjin Group Chairman and Korean Air Lines CEO Cho Won-tae (Courtesy of Korean Air)
Hanjin Group Chairman and Korean Air Lines CEO Cho Won-tae (Courtesy of Korean Air)

The 15-month-long family feud over the control of Korean Air Lines Co. has ended with group chairman Cho Won-tae’s win over his sister Cho Hyun-ah and the activist fund Korea Corporate Governance Improvement Fund (KCGI).

According to the industry on Apr. 2, the three-party alliance formed against the incumbent management by KCGI, Cho Hyun-ah and Bando Engineering & Construction Co. has terminated the joint ownership agreement of its Hanjin KAL stocks as of Apr. 1.

With the termination, the three parties are no longer required to get consent from the other two prior to liquidating their shares in Hanjin KAL, the parent company of Korean Air.

The alliance currently holds a 40.41% stake in Hanjin KAL: KCGI owns 17.54%, Bando 17.15%; and Cho Hyun-ah 5.71%.

Meanwhile, Hanjin Group Chairman Cho Won-tae and affiliated persons own 36.66%; and South Korea’s state-run Korea Development Bank (KDB) owns 10.66%.

KDB TILTS THE BALANCE

Since its establishment in January 2020, the alliance had been relentless in asking for the resignation of chairman Cho and also attempted to change Hanjin KAL’s board of directors in March 2020.

The chairman’s victory had seemed a distant dream last November when the alliance owned up to 46% of Hanjin KAL stocks versus only 41.4% supporting him.

The tide turned in December, however, when the South Korean government decided to intervene through KDB’s Hanjin KAL stock acquisition, highlighting the need to stabilize the country’s airline industry amid the Asiana Airlines crisis.

KDB's priority at the time was normalizing the operations of Asiana, the country’s second-largest full-fledged carrier, which had been under creditor control since mid-September. 

The state-run bank, as Asiana's main creditor, had considered various possible solutions including nationalization of Asiana and sellout to one of the country's leading conglomerates, such as Samsung or SK, without success. 

Hanjin KAL solved KDB's problem by kicking off negotiations in November to purchase its rival, resulting in affiliate Korean Air's acquisition of Asiana and KDB purchasing 10.66% of Hanjin KAL stocks to fund the merger process. 

KDB had also set Hanjin KAL's management transparency -- a main area of criticism by the alliance -- as a precondition for the investment.

The alliance started to lose momentum after KDB’s involvement and failed to make a shareholder proposal during Hanjin KAL’s annual shareholders’ meeting last month.

However, KCGI is reported to be holding its Hanjin KAL stocks for some time before it makes an exit, expecting a further upward trend in the price.

“KDB’s involvement did provide at least some check and balance against Hanjin KAL’s current top management. We as shareholders will continue to monitor the management’s activities,” said a spokesperson for KCGI.

Kang Sung-boo, head of activist fund Korea Corporate Governance Improvement (KCGI), explains the rationale behind the activism campaign in a Feb. 2020 press conference. 
Kang Sung-boo, head of activist fund Korea Corporate Governance Improvement (KCGI), explains the rationale behind the activism campaign in a Feb. 2020 press conference. 

The industry estimates that the activist fund is already enjoying a 300 billion won ($266 million) rise in the value of its Hanjin KAL stocks.

KCGI made its first investment in the company in November 2018, with an average purchase price in the middle range of 30,000 to 40,000 won.

Hanjin KAL shares closed at 57,400 won on Apr. 2.

Write to Kyung-Min Kang at kkm1026@hankyung.com

Daniel Cho edited this article.

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