Jo Won-tae Successfully Defends First Management Control... Now Moving to a 'Long-Term Battle'

3-Party Alliance to Continue Offensive with Share Purchase and Extraordinary General Meeting
"Cho Won-tae Must Prove Management Ability Amid COVID-19 Crisis"

[Asia Economy Reporters Kim Hyewon and Yoo Jehun] Although the regular shareholders' meeting of Hanjin KAL, which involved the management rights of Hanjin Group, ended with Chairman Cho Won-tae's side winning, the management rights dispute of Hanjin Group, ranked 13th in the business world, has entered a prolonged phase. The business community expects that the shareholder coalition (hereafter the "3-party coalition") formed to normalize Hanjin Group by recently gathering shares will not let up in their offensive, including demanding the convening of an extraordinary shareholders' meeting. In a situation where the aviation industry is on the brink of collapse due to the novel coronavirus disease (COVID-19), Chairman Cho faces the difficult task of proving his management capabilities both internally and externally to maintain control going forward.

According to the business community on the 27th, the 3-party coalition consisting of private equity fund (PEF) KCGI, Bando Construction, and former Korean Air Vice President Cho Hyun-ah has recently continued purchasing Hanjin KAL shares, expanding their stake to 42.13%. Including the friendly small shareholder coalition (1.5%), the disclosed shareholding ratio is 43.63%, which is 1.24 percentage points ahead of the shares and friendly stakes (42.39%) secured by Chairman Cho.

Inside and outside the business community, since the 3-party coalition has prepared for a 'long-term battle' like this, it is expected that the management rights dispute of Hanjin Group will continue. The 3-party coalition will continuously attempt to dominate the board of directors, and Hanjin Group will continue its defensive battle. For example, the 3-party coalition might push through a proposal to dismiss Chairman Cho from his position as an inside director at the board, or because Chairman Cho has no suitable way to establish a firm shareholding advantage.

A business community official said, "Even Shin Dong-joo, chairman of SDJ Corporation, who holds only 0.2% of shares in a Korean holding company, had a management rights dispute with his younger brother Shin Dong-bin, chairman of Lotte Group, for several years. So, would the 3-party coalition holding 40% give up easily?" He added, "They must have purchased shares with a long-term battle in mind from the start." The 3-party coalition is expected to actively begin convening an extraordinary shareholders' meeting to seize control of the board. According to Article 366 of the current Commercial Act, shareholders holding more than 3% of the total issued shares can request the board to convene an extraordinary shareholders' meeting. The 3-party coalition is also expected to continue purchasing shares simultaneously. It is evaluated that they do not lack 'ammunition,' as Bando Construction, known to have considerable cash assets, backs them.

The Hanjin KAL board of directors is also in a position where it cannot simply refuse the 3-party coalition's request for an extraordinary shareholders' meeting. According to the relevant provision of the Commercial Act, if the board refuses to convene the meeting, shareholders can convene the meeting with court approval, and in this case, the chairman of the shareholders' meeting can be appointed ex officio by the court. Losing the chairmanship of the shareholders' meeting in a situation where shareholding ratios are close is not a favorable scenario for Hanjin Group.

Hanjin KAL is also expected to prepare a counterattack. Previously, Hanjin KAL requested the Financial Supervisory Service to investigate and order the sale of shares, alleging that the 3-party coalition violated the Capital Markets and Financial Investment Business Act (Capital Markets Act). If such claims are accepted, the 3-party coalition may have to sell their holdings in the mid to long term.

Chairman Cho also needs to find another white knight or a clever strategy to reverse the situation. The inheritance tax issue amounting to 270 billion won remains, and Delta Air Lines, a representative ally, has stopped expanding its stake at 14.90% due to corporate merger issues. Moreover, the entire global aviation industry, which could have been an ally for Chairman Cho, is in a state of stagnation due to COVID-19.

Industry insiders advise that Chairman Cho must firmly prove his 'management capability' to break the deadlock. The judgment of institutions and small shareholders may vary depending on how he manages the worst business environment triggered by COVID-19. Specifically, improvements in financial structure through the sale of idle assets, as pledged by Chairman Cho, and minimizing losses through management rationalization are cited. Lee Sang-heon, a researcher at Hi Investment & Securities, said, "Given the current situation, the deadlock between Hanjin and the 3-party coalition is expected to continue for the time being," adding, "Chairman Cho needs to prove his management capabilities both internally and externally to maintain management rights even in a long-term battle."

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