Walter Cho’s Efforts to Rally Friendly Shareholders Gather Pace as Hanjin KAL Corporation Control Battle Enters a New Phase

[Financial News]  With the shareholding battle surrounding Hanjin KAL Corporation reigniting, attention is turning to Hanjin Group Chairman Walter Cho’s ability to defend his control. Hoban Group is threatening his position as the largest shareholder by acquiring additional shares, but Cho’s side appears to be responding by increasing its stake and building on its cooperative relationship with existing friendly shareholders. Analysts say the possibility of a delayed sale of Korea Development Bank (KDB)’s stake could, in the short term, help preserve the current control structure.
On the 4th, Kim Soo-hyun, a center director at DS Investment & Securities, said in a comment on Hanjin KAL Corporation’s corporate governance that market expectations of a management-control contest had risen following Hoban Group’s business-combination filing and Cho’s additional share purchase.
Hoban recently secured additional shares in Hanjin KAL Corporation and then filed a business-combination report with the Korea Fair Trade Commission in light of the possibility of a change in the largest shareholder. Cho, too, entered into an agreement to buy 325,000 shares in Hanjin KAL Corporation for about 37 billion won. Once the transaction is completed, the combined stake held by Cho and related parties will rise to about 21.06%.
However, the position of largest shareholder should be distinguished from actual control of the company. Cho’s side maintains its cooperative relationship with existing friendly shareholders, including Delta Air Lines. This means that even if Hoban acquires additional shares, it will not automatically take control.
The moves of KDB, which holds the casting vote, are also an important factor for Cho’s side. KDB is prioritizing the completion of the aviation industry restructuring, including the integration of Korean Air, Asiana Airlines and low-cost carriers (LCCs), over the sale of its 10.58% stake in Hanjin KAL Corporation. This has prompted speculation that the stake sale could be delayed even after the integrated airline launches.
Hoban’s financial investment performance is also worth watching. DS Investment & Securities estimated the valuation gain on Hoban’s stake in Hanjin KAL Corporation at about 1.5 trillion won. Center Director Kim interpreted the situation this way: “Having already achieved substantial investment returns, regardless of whether it secures control, Hoban may have limited incentive to step up the control contest in the short term.” 
Over the longer term, however, differences in the ability to mobilize funds will be a factor. Hoban has cash available at the corporate level, while Chairman Cho has to rely on personal funds, share-backed loans and other sources. However, Cho’s side has an established management base and a network of friendly shareholders, making it difficult to predict the outcome of the control battle based solely on a comparison of financial resources.
Meanwhile, DS Investment & Securities forecast that, for the time being, market expectations of a control dispute would have a greater impact on the share price than actual changes in corporate governance. Hanjin KAL Corporation’s 46% rise over two days is also seen as reflecting those expectations.
The key points to watch are next year’s annual shareholders’ meeting and how KDB handles its stake. As Cho’s side maintains control on the basis of friendly shareholdings, whether Hoban acquires additional shares is expected to be a factor in the company’s medium- to long-term governance.
[email protected] Kim Gyeong-a Reporter