Delta Air increases stake in Hanjin KAL to back Chairman Cho

Delta Air Lines Inc., a friendly shareholder of Hanjin KAL Co., has bought an additional 1.7% stake in the company, which operates Korea’s largest airline company – a move seen as further backing Hanjin Chairman Cho Won-tae in a family feud over management rights.

According to the Financial Supervisory Service’s public disclosure system on Monday, the US airline purchased about 1.13 million shares of Hanjin KAL, the parent of Korean Air Lines Co., for 70.7 billion won ($52 million) from Korea’s Bando Group on Aug. 30.

Delta Air bought the stake at 62,500 won per share, data from the regulator showed.

Following the latest share purchase, Delta’s stake in Hanjin KAL has risen to 14.78%.

The transaction was part of Bando’s sale of its 15.75% stake to local and foreign companies through a club deal, in which the investor group of private equity firms pools its assets and makes the acquisition collectively.

As part of the deal, Bando’s 3.83% stake went to LX Pantos, a logistics unit of Korea’s LX Group, another friendly shareholder of Hanjin Chairman Cho, who also goes by his English name Walter Cho.

Bando Group, of which Bando Engineering & Construction Co. is a major affiliate, now has just 2.16% of Hanjin KAL.

WHITE KNIGHTS VS FOES

With its additional stake purchase, Delta Air is widely expected to play the role of a “white knight,” throwing its clout behind Cho if a proxy contest occurs over the management of Hanjin Group and Korean Air.

Following Delta’s recent move, Chairman Cho and his supporters' combined stake in Hanjin KAL is 48.82%.

According to government data, Chairman Cho and affiliated persons together own 18.73% of Hanjin KAL.

Other shareholders close to the chairman include Delta Air Lines, Korea Development Bank (10.49%), LX Pantos and Naver Corp. (0.99%).

Bando Group, an earlier risk to Cho’s management rights, is out of the picture. Bando is now said to be siding with Cho.

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

Hoban Construction Co., a mid-sized Korean builder, owns 16.44% of Hanjin KAL. The builder didn’t clearly say who it is backing, but industry watchers said the company is closer to Cho Hyun-ah, also known by her English name Heather Cho.

PROXY WAR

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 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 IN A CATCH-22 

Analysts said Hoban Construction is in a difficult situation now that Hanjin KAL’s management rights dispute seems to be over with Chairman Cho now clearly having the upper hand.

Hoban bought its 16.44% stake in Hanjin KLA for 663.9 billion won, or 59,985 won per share, earlier this year.

According to industry watchers, one of the main reasons behind Hoban’s stake purchase was to benefit from delivering a “casting vote” in a proxy fight.

Now that the management issue has subsided, however, it looks almost impossible for Hoban to gain a windfall.

As of Monday, shares of Hanjin KAL closed at 46,900 won, down 3.6% from the previous session.

“Hoban may have bought into the family feud at the wrong time. Apparently, it won’t be easy for the company to recover its investment in Hanjin KAL,” said an industry official.

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