[Active Volcano Hanjin Family] Equal Upbringing of Three Siblings and Group Control (Part 2)

Jump Up in Control Power with Transition to Holding Company System

Will the rift within the Hanjin Group family be sealed as it is? Although a reconciliation atmosphere was created for the greater cause of maintaining management rights, realistic adjustments of interests for peaceful family co-management have not yet been achieved. Without mutually acceptable give-and-take, the rift can break out again at any time. Everyone knows that if they scatter, they all die together, but perfectly repairing a broken plate is no easy task. It is also not easy to distinguish between external allies and enemies. KCGI, Delta Air Lines, and Bando Group continue to buy Hanjin KAL shares while calculating their moves. They are currently on our side, but they could turn around and reveal their claws at any time. The National Pension Service and many individual investors watching the situation are weighing which side to take. The third generation of the Hanjin family stands at a turning point on whether they can maintain group control and management rights across three generations. We examine the process through which they secured control over Hanjin Group, the current situation, future variables, and assess whether the sibling co-management system can be sustained long-term.

[Asia Economy Reporter Lim Jeong-su] The control of the Hanjin Group by the three siblings jumped in 2013 with the transition to a holding company system. At that time, due to government pressure on restructuring governance, maintaining control through existing circular shareholding was difficult. For this reason, former Chairman Cho Yang-ho took out the holding company transition card as a means to strengthen group control while resolving circular shareholding.

◇Securing control of holding company 'Hanjin KAL' through Korean Air split and stock swap

The holding company transition began with the demerger of Korean Air. When Hanjin Group split Korean Air into Hanjin KAL and Korean Air, the existing Korean Air shares (10.12%) held by former Chairman Cho Yang-ho and the three siblings were converted into shares of Hanjin KAL (10.12%) and Korean Air (10.12%).

Also, the treasury shares of Korean Air (about 7%) purchased before the holding company transition were converted into common shares of Korean Air held by Hanjin KAL through the split. This utilized the so-called 'magic of treasury shares,' where treasury shares regain voting rights through corporate division.

Then, former Chairman Cho conducted a stock swap between Hanjin KAL and Korean Air. This was a move to increase Korean Air shares held by the holding company Hanjin KAL and thereby increase family control over Hanjin KAL. Hanjin KAL received 30 million shares of Korean Air as a contribution in kind and, in return, distributed 43,121,149 new shares of Hanjin KAL to Korean Air shareholders. As a result, Hanjin KAL expanded its stake in Korean Air to 32.83%, meeting the holding company requirement of owning more than 30% of a subsidiary.

The Cho family became the major shareholder of the holding company Hanjin KAL by swapping Korean Air shares for Hanjin KAL shares. The family's stake in Hanjin KAL, which was only about 10%, exceeded 23%.

It was also at this time that the three siblings secured control over Hanjin KAL. Through the Korean Air demerger, they each held 1.08% of Hanjin KAL and Korean Air shares, and through the stock swap, their Hanjin KAL stake increased to 2.50% each. The combined stake of the three siblings in Hanjin KAL rose to 7.50%.

◇Follow-up work after holding company transition... Completion of the Hanjin family control system

Afterwards, Hanjin Group resolved remaining circular shareholding and cross-shareholding loops. At the end of 2014, Hanjin sold its stake in Hanjin KAL. This simplified the circular shareholding structure from 'Jungseok Enterprise → Hanjin → Hanjin KAL → Jungseok Enterprise' to 'Hanjin KAL → Jungseok Enterprise → Hanjin.'

Also, the investment division of Jungseok Enterprise was separated and merged with Hanjin KAL. In this process, Jungseok Enterprise (business division) came to hold shares in Hanjin KAL, creating a cross-shareholding structure.

To comply with the prohibition of cross-shareholding between holding companies and subsidiaries, Hanjin Group disposed of all Hanjin KAL shares held by Jungseok Enterprise. With cross-shareholding resolved, the Hanjin Group's governance structure was completed as 'Hanjin family → Hanjin KAL → Hanjin.'

With the merger of Hanjin KAL and Jungseok Enterprise, Korean Air became a subsidiary of Hanjin KAL. Also, Hanjin's logistics subsidiaries changed from great-grandchildren companies of Hanjin KAL to grandchildren companies. This met the Fair Trade Act's restriction that holding companies' grandchildren companies are prohibited from holding shares in affiliates other than 100% owned great-grandchildren companies.

◇Prolonged equal control by the three siblings... Potential cause of rift

After the governance restructuring, the three siblings' stake in Hanjin KAL showed slight fluctuations through capital increases but maintained levels close to those immediately after the holding company transition until recently.

Last year, the three siblings further increased their control by inheriting 17.84% of Hanjin KAL shares held by former Chairman Cho. Currently, Cho Won-tae, Chairman of Hanjin Group, holds 6.46%, former Korean Air Vice President Cho Hyun-ah holds 6.43%, and Hanjin KAL Executive Director Cho Hyun-min holds 6.42% of Hanjin KAL shares. Lee Myung-hee, advisor of Jungseok Enterprise, holds 5.27%.

An industry insider said, "Due to difficulties in securing succession funds, none of the siblings could acquire an overwhelming stake," and predicted, "The equal control structure of the three siblings over Hanjin Group is bound to be prolonged." The insider also foresaw, "This could also be a potential cause of rift."

This content was produced with the assistance of AI translation services.