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Hanjin KAL’s proxy war to intensify despite activist fund's defeat
By Son Ji-hyoungPublished : March 27, 2020 - 20:51
South Korea’s activist private equity fund Korea Corporate Governance Improvement on Friday vowed to restore Hanjin Group “back on track,” signaling its push for activism despite the Friday defeat.
“We could feel the shareholders' desire to change Hanjin KAL’s management by the owner family,” the coalition led by KCGI wrote in a letter to shareholders.
“The most crucial is for Hanjin Group to make a breakthrough, and we believe that the only solutiom is to invite independent professional managers to the board.”
The letter came after the coalition composed of KCGI, estranged heiress Cho Hyun-ah and Bando Construction took a blow in the proxy battle of the top holding firm of the airline-to-transportation conglomerate owned by the Cho family.
Blaming the owner family for the flagship air carrier Korean Air’s accumulated 1.7 trillion won ($1.39 billion) loss from 2014 to 2019, the KCGI-led coalition sought to dethrone incumbent Chairman Cho Won-tae and bring in new board candidates composed of entrepreneurs and professors.
But shareholders of Hanjin KAL -- representing nearly 85 percent of common shares -- voted down all seven candidates for board of directors proposed by the hostile shareholder group, including ex-SK Group vice chairman Kim Shin-bae.
Representing 28.78 percent of the shares Friday, the trio fell short of ousting the chairman from the Hanjin KAL board and preventing the election of director candidates proposed by Hanjin KAL.
An omen for the proxy war result was the earlier ruling of the court on Tuesday, which banned Bando Construction from exercising more than 5 percent of its voting rights and permitted Chairman Cho-friendly shareholders to exercise a combined 3.8 percent rights. The KCGI-led coalition referred to the decision as its “worst-case scenario.”
The coalition’s ownership rose to 42.13 percent, according to the latest disclosure this week, leaving rooms for it to launch a fresh set of proxy battle by proposing to hold an extraordinary shareholders meeting.
Moreover, KCGI announced Friday that it had secured 15.2 billion won cash ammunition by selling off shares in Hanjin Group’s transportation arm Hanjin.
The ongoing shareholder activism “will leave Korean Air restrained from venturing into new business opportunities,” as Chairman Cho will carry out an airtight defense to keep his boardroom intact, Chun Sam-hyun, a law professor at Soongsil University, told The Korea Herald.
“Especially in Korea, (minority shareholders) have a deluge of options to keep largest shareholders in check,” Chun added citing Korea's Commercial Act. “At this point, it is safe to say that (the Friday shareholder meeting) was just the prelude of what’s next to come.”
The share price of Hanjin KAL hit the price ceiling Friday, to 57,200 won per share, in an apparent bid for the large shareholders to lure retail investors.
“As long as the competition escalates, Hanjin KAL’s share price volatility is expected to continue,” Choi Nam-kon, an analyst at Yuanta Securities Korea, wrote in a note Friday. “Once the proxy battle ends, Hanjin KAL’s share price will fall below our estimated target price at 33,000 won per share.”
By Son Ji-hyoung (consnow@heraldcorp.com)
“We could feel the shareholders' desire to change Hanjin KAL’s management by the owner family,” the coalition led by KCGI wrote in a letter to shareholders.
“The most crucial is for Hanjin Group to make a breakthrough, and we believe that the only solutiom is to invite independent professional managers to the board.”
The letter came after the coalition composed of KCGI, estranged heiress Cho Hyun-ah and Bando Construction took a blow in the proxy battle of the top holding firm of the airline-to-transportation conglomerate owned by the Cho family.
Blaming the owner family for the flagship air carrier Korean Air’s accumulated 1.7 trillion won ($1.39 billion) loss from 2014 to 2019, the KCGI-led coalition sought to dethrone incumbent Chairman Cho Won-tae and bring in new board candidates composed of entrepreneurs and professors.
But shareholders of Hanjin KAL -- representing nearly 85 percent of common shares -- voted down all seven candidates for board of directors proposed by the hostile shareholder group, including ex-SK Group vice chairman Kim Shin-bae.
Representing 28.78 percent of the shares Friday, the trio fell short of ousting the chairman from the Hanjin KAL board and preventing the election of director candidates proposed by Hanjin KAL.
An omen for the proxy war result was the earlier ruling of the court on Tuesday, which banned Bando Construction from exercising more than 5 percent of its voting rights and permitted Chairman Cho-friendly shareholders to exercise a combined 3.8 percent rights. The KCGI-led coalition referred to the decision as its “worst-case scenario.”
The coalition’s ownership rose to 42.13 percent, according to the latest disclosure this week, leaving rooms for it to launch a fresh set of proxy battle by proposing to hold an extraordinary shareholders meeting.
Moreover, KCGI announced Friday that it had secured 15.2 billion won cash ammunition by selling off shares in Hanjin Group’s transportation arm Hanjin.
The ongoing shareholder activism “will leave Korean Air restrained from venturing into new business opportunities,” as Chairman Cho will carry out an airtight defense to keep his boardroom intact, Chun Sam-hyun, a law professor at Soongsil University, told The Korea Herald.
“Especially in Korea, (minority shareholders) have a deluge of options to keep largest shareholders in check,” Chun added citing Korea's Commercial Act. “At this point, it is safe to say that (the Friday shareholder meeting) was just the prelude of what’s next to come.”
The share price of Hanjin KAL hit the price ceiling Friday, to 57,200 won per share, in an apparent bid for the large shareholders to lure retail investors.
“As long as the competition escalates, Hanjin KAL’s share price volatility is expected to continue,” Choi Nam-kon, an analyst at Yuanta Securities Korea, wrote in a note Friday. “Once the proxy battle ends, Hanjin KAL’s share price will fall below our estimated target price at 33,000 won per share.”
By Son Ji-hyoung (consnow@heraldcorp.com)
