Naver emerges as Hanjin KAL’s white knight with stake purchase

South Korea’s online portal giant Naver Corp. has emerged as one of Hanjin KAL Co.'s key friendly shareholders, throwing its clout behind Chairman Cho Won-tae in a family feud over management rights.

According to the Financial Supervisory Service’s public disclosure system on Sunday, Naver purchased 488,364 shares of Hanjin KAL, the parent of Korean Air Lines Co., for 34.14 billion won ($27.8 million) throughout last year.

Naver reported to the financial regulator that the purpose of its Hanjin KAL share purchase was to forge a “strategic partnership.”

The share purchase followed Naver’s acquisition of 174,636 shares in Hanjin KAL worth 8.57 billion won in 2020, bringing the internet portal giant’s total stake in Hanjin to 1% as of Sunday.

Calculations show Naver’s average purchasing price stands at 64,422 won a share, above Hanjin KAL’s closing share price of 58,300 won last Friday, meaning a 9.5% evaluation loss for Naver’s investment in Hanjin.

Analysts said Naver, which already signed a business cooperation pact with Korean Air to help the airline with its digital innovation efforts in the flight services sector, will provide support for Chairman Cho during an unfriendly proxy battle over the control of the group.

Naver, if needed, is willing to buy additional shares in Hanjin KAL, according to industry sources.

MUTUAL WHITE KNIGHTS

In return, Naver would hope to secure support from Chairman Cho and his friendly shareholders against a hostile takeover bid or in a management rights dispute. If a proxy contest occurs, Naver could sell its treasury shares amounting to an 8.99% stake to Hanjin KAL and ask it to play the role of a “white knight,” the sources said.

Korea Corporate Governance Improvement Fund (KCGI), a local activist fund, has been in a dispute with Hanjin Group Chairman Cho since 2018 when it bought a stake in Hanjin KAL, which works as the group’s holding company.

In 2020, the fund formed an alliance with the chairman’s sister Cho Hyun-ah, a former vice president of Korean Air, and Bando Engineering & Construction Co.

Claiming that shares of Hanjin Group affiliates were undervalued due to poor management and weak corporate governance, the three-way alliance attempted to oust Hanjin KAL’s top management, but failed to secure control of the company during a proxy fight at a shareholders’ meeting in 2020.

State-run Korea Development Bank (KDB) that year emerged as a major shareholder of Hanjin KAL by purchasing newly issued Hanjin shares and endorsed the existing top management, citing the need to stabilize the country’s airline industry as Korean Air was seeking to acquire debt-laden local rival Asiana Airlines Inc.

HOBAN, FRIEND OR FOE?

Last month, the activist fund KCGI exited its investment in Hanjin KAL by selling its entire 17.43% stake to a mid-sized Korean builder, Hoban Construction Co., for 683.9 billion won, reigniting uncertainties over the control of Korean Air and other affiliates.

According to government data, Chairman Cho and the people affiliated with him own a combined 18.75% of Hanjin KAL as of April 15. Other shareholders close to the chairman include Delta Air Lines Inc. with a 13.21% stake, and KDB with 10.5%.

Meanwhile, parties deemed antagonistic to Chairman Cho’s control of the group include Bando with a 17.91% stake and his sister Cho Hyun-ah, who has a 2.06% stake.

If Hoban, who recently took over KCGI’s 17.43% stake, backs Bando and Cho Hyun-ah, also known by her English name Heather Cho, the chairman’s control over Hanjin KAL will be seriously threatened.

“When Hoban spent nearly 700 billion won to buy Hanjin KAL shares, it stated that it is buying the stake for investment purchases and isn’t interested in interfering with management affairs. But who would simply believe that?” said an investment banking industry official.

In 2015, Hoban showed interest in acquiring a controlling stake in Kumho Industrial Co., the parent of Asiana Airlines.

Hoban had 1.5 trillion won in cash and other liquid assets at the end of 2021.

Write to Ik-Hwan Kim at lovepen@hankyung.com
In-Soo Nam edited this article.