SOUTH KOREA. Two key shareholders of Korean Air’s parent company Hanjin Kal are joining forces to oust the airline’s current management, writes The Moodie Davitt Report Senior Retail and Commercial Analyst Min Yong Jung.
Cho Hyun-ah (Heather Cho, former Korean Air executive and inflight retail chief and eldest daughter to the late Chairman Cho Yang-ho) and Bando Engineering & Construction (Bando E&C) will be voting for the Korea Corporate Governance Improvement Fund (KCGI) proposal to appoint professional management.
The alliance between Heather Cho, KCGI and Bando E&C owns 32.06% of Hanjin Kal, increasing KCGI’s chances of pushing through key agendas in the critical shareholder meeting scheduled for late March.
Table: The new alliance ownership of Hanjin Kal
(Source: Financial Supervisory Service, Moodie Davitt Business Intelligence Unit)
Cho Hyun-ah, KCGI and Bando E&C today issued a joint statement “The current management of Hanjin Group and Korean Air is in a crisis and can’t be improved by the current management. We share the view that it is necessary to enhance shareholder value by improving its financial structure and introducing efficient management, including the introduction of professional management. We agree to actively cooperate in activities to develop Hanjin Group, including joint exercise of voting rights in shareholder proposal in the upcoming shareholder meeting of Hanjin Kal.”
Prior to the formation of the alliance, KCGI’s chances of pushing through key agendas required for management change looked slim. Initially the Cho family looked united to protect their management role of the company and third-party owners such as Delta Airlines and Bando E&C were expected to side with the family.
Shareholder ownership of Hanjin Kal by key stakeholders prior to announcement of alliance
(Source: Financial Supervisory Service, Moodie Davitt Business Intelligence Unit)
The increased ownership of Hanjin Kal by the alliance means Delta’s vote is a key swing factor among key stakeholders. Cho Hyun-ah’s crossover to KCGI’s alliance places greater importance for votes on both sides.
Shareholder ownership of Hanjin Kal by key stakeholders after announcement of alliance
(Source: Financial Supervisory Service, Moodie Davitt Business Intelligence Unit)
Hanjin Kal is expected to host its annual general meeting (AGM), a yearly gathering of shareholders, to decide on key agendas for the company. Previous AGMs have always been held on a Friday towards the last two weeks of the month. Based on previous dates, this year’s AGM is likely to be held on 20 or 27 March. Minority shareholders with over KRW100 billion worth of shares (i.e. over 0.5%) are allowed to propose agendas to be voted on by shareholders at the AGM. The deadline to submit agenda proposals is six weeks before the AGM.
Hanjin Kal is expected to put Chairman Cho Hyun-tae’s (Heather Cho’s brother) reappointment as a key agenda item and the KCGI alliance is likely to put forth their own candidate. The key shareholder vote will decide who will control Korea’s largest airline.
(Source: Financial Supervisory Service, Moodie Davitt Business Intelligence Unit)
Cho Hyun-ah’s alliance with KCGI had been speculated by the Korean media but the chances of a coalition forming was deemed low. Ms Cho had shown strong affection for the group’s hotel business but KCGI has long declared that the loss-making sector needed to be disposed of. It remains to be seen if Cho Hyun-ah (the mastermind of the airline’s highly successful inflight business of recent years) will return to a management role if KCGI defeats her brother Cho Hyun-tae in this year’s AGM.
The inclusion of Bando E&C in the alliance was a big surprise. The company’s Chairman, Kwon Hong-sa, had previously claimed that he was acquiring shares because of his close relationship with late Chairman Cho Yang-ho. Chairman Kwon is reported to be close to Lee Myung-hee and questions remain over whether additional family members will join Cho Hyun-ah in the new alliance.
There is additional impetus for Cho Hyun-ah’s mother to join sides against her son Cho Hyun-tae, as the two were involved in a highly public spat during Christmas. Although a public apology was issued and relations seem to have been mended, Korean media report that relations are much closer between Cho Hyun-ah and her mother.
Minority shareholders – and gaining their votes in the critical AGM – will be important. Minority shareholders account for 35.5% of remaining shares. Chairman Cho Hyun-tae looks to be working to attract the general public to his side, having recently accompanied a chartered Korean Air flight to bring back Korean nationals stranded in Wuhan. Retail investors may find this public showing positive but institutional investors will weigh up the pros and cons of the existing management and wait for corporate governance advisory services to make their conclusions.
