Hanjin Group management rights feud resolved with aid of LX Group

LX Pantos, an LX Group affiliate, has acquired a 3.86% stake in Hanjin KAL Corp., the holding company of Hanjin Group.

The LX Group is considered a key friendly shareholder to Hanjin Group Chairman Walter Cho, who also goes by his Korean name of Cho Won-tae.

Cho serves as the chairman and CEO of Hanjin Group and Korean Air Lines Co., South Korea’s largest airline and flag carrier.

The 46-year-old is a member of the International Air Transport Association’s (IATA) Board of Governors and Chairman of the SkyTeam Alliance Board.

Experts view the latest move as LX Pantos putting its clout behind Chairman Cho in a longstanding family feud over management rights. 

WHITE KNIGHT

According to industry insiders on Monday, LX Pantos acquired a 3.83% stake in or approximately 2.58 million shares of Hanjin KAL, the parent company of Korean Air, for some 160 billion won ($118.4 million) last Friday. 

In other words, the LX affiliate paid 62,000 won ($45.87) per share. 

Bando Group, which owns Bando Engineering & Construction Co. among other affiliates, sold most of its 17.2% stake, or 11.36 million shares, in Hanjin KAL on the same day. 

Bando is said to have sold its 3.83% stake to LX Pantos and the rest as block deals to institutional investors. 

Also called off-hour block trading, a block deal refers to the trading of stocks in bulk on the Korea Exchange (KRX) before or after its business hours of 9 a.m. to 3 p.m. 

LX Pantos is a logistics service provider and is the undisputed leader in air cargo handling in South Korea.

Following the latest decision, LX Pantos and Hanjin Group are poised to bolster their existing alliance in air freight services.

NEW ERA

The LX Pantos acquisition signals the end of a family feud over management rights, industry insiders said.

With the emergence of LX Pantos as a white knight, Chairman Cho and his supporters' stake in Hanjin KAL now exceeds 50%. 

In detail, Cho holds a 5.78% stake in the company while those affiliated with him and the Korea Development Bank own a combined 10.58% stake. 

Other shareholders close to the chairman include Delta Air Lines Inc. with a 13.21% stake, the aforementioned LX Pantos with a 3.83% stake, and tech behemoth Naver Corp. with 0.99%. 

Altogether, Cho and his friendly shareholders have a 51.94% stake in Hanjin KAL.

Not only that, the Bando Group, an earlier risk to his management rights, is now out of the picture. 

Cho is the only son of former Hanjin Group Chairman Cho Yang-ho and the grandson of the group’s founder Cho Choong-hoon. 

One of his two sisters, Cho Hyun-ah, who also goes by the name of Heather Cho, has previously threatened his management rights.

FAMILY BUSINESS

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

Two years ago, 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.

The three-way alliance attempted to thwart Hanjin KAL’s top management, claiming that the Hanjin affiliates' stocks are hugely undervalued due to poor management and weak corporate governance. 

But the alliance failed to secure control of the company during a proxy fight at a shareholders’ meeting in 2020.

Cho Hyun-ah's stake in Hanjin KAL currently accounts for only 2.06% of the total.

In late March, KCGI exited its investment in Hanjin KAL by selling its stake to Hoban Construction Co., a mid-sized Korean builder, which now has a 16.44% stake in the airline juggernaut.

While it is unclear where Hoban Construction stands in terms of its approval of the incumbent chairman, the company reportedly told Hanjin KAL that it has no interest in getting involved on the management side. 

STRONGER ALLIANCE

The LX Group branched off from LG Group last year to become South Korea’s 50th largest conglomerate with five units, namely: LG International, LG Hausys, LG MMA, Silicon Works, and LX Pantos Logistics.

The group is poised to expand its cooperation with Hanjin Group to bolster the air freight business, utilizing its network that spreads across 360 locations worldwide.

LX Pantos has been strengthening its air freight business since the COVID-19 outbreak, by quadrupling the volume of its chartered planes compared to pre-pandemic levels. 

The logistics firm is the largest client to both Korean Air and its competitor, Asiana Airlines Inc.

Write to Kyung-Min Kang, Ji-Hoon Lee, and Ik-Hwan Kim at kkm1026@hankyung.com
Jee Abbey Lee edited this article.