Asiana·Eastar M&A 'All Stop'

Jeju Air's Non-Response... Eastar Air's Temporary General Meeting Virtually Canceled
D-1 Asiana M&A Also Expected to Be Delayed

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] The merger and acquisition (M&A) process for Asiana Airlines and Eastar Jet, whose deal closing dates are approaching, has effectively come to a halt. The acquiring parties, HDC Hyundai Development Company and Jeju Air, have yet to make significant progress regarding the M&A conditions. As the aviation industry downturn caused by the COVID-19 pandemic prolongs, the structural reorganization of the airline industry, which had just begun, now faces the risk of collapse.

◆ D-1 Asiana, Effectively Postponed = According to the aviation industry on the 26th, the consortium of HDC Hyundai Development Company and Mirae Asset Daewoo and Kumho Industrial signed a stock purchase agreement (SPA) last December, agreeing to complete the transaction by the 27th of this month. Although the deal closing date is just one day away, it is naturally expected to be postponed. This is because the precondition for acquisition approval of overseas corporate mergers (Russia) has not been resolved. Previously, HDC Hyundai Development Company and Kumho Industrial agreed that the closing deadline could be extended up to six months depending on whether these preconditions were met.

In particular, on the 9th, HDC Hyundai Development Company responded to creditors including KDB Industrial Bank, expressing agreement with the 'provisional deal closing deadline (Long stop date)' for re-examining the acquisition status and renegotiating acquisition conditions. However, separate renegotiations between HDC Hyundai Development Company and the creditors have not made any notable progress. KDB Industrial Bank Chairman Lee Dong-gul urged the resumption of negotiations, saying, "This is not a 1960s romance, why write letters?" after HDC Hyundai Development Company requested written negotiations, but so far, HDC Hyundai Development Company has not provided any substantial response.

Industry insiders believe that since HDC Hyundai Development Company has mentioned renegotiations, it is unlikely to take extreme measures such as immediate withdrawal from the acquisition. A business official said, "From HDC Hyundai Development Company's perspective, immediately giving up the acquisition could lead to accountability issues, so they are carefully reviewing the conditions," adding, "If renegotiations begin, discussions could include reducing the payment for existing shares to Kumho Industrial, converting KDB Industrial Bank's perpetual bonds (KRW 500 billion) into equity, and lowering the acquisition price."

◆ No Progress in Eastar M&A... Risk of Failure = The deal closing deadline for Eastar Jet's M&A is also approaching. The industry estimates the closing date to be around the 29th, based on the scheduled payment date of KRW 10 billion convertible bonds (CB) to be issued by Jeju Air on the 30th.

Jeju Air's acquisition of Eastar Jet is also at a standstill. The apparent reasons are unresolved preconditions such as overseas corporate merger reviews (Vietnam) and the guarantee for Thai Eastar Jet payment (USD 31 million). The issue of unpaid wages for employees, which has been overdue since February, also shows no signs of resolution. Recently, Eastar Jet proposed to Jeju Air to bear KRW 11 billion of the KRW 25 billion unpaid wages, but Jeju Air has shown little interest.

In fact, Eastar Jet convened an extraordinary shareholders' meeting in preparation for the acquisition, but it was ultimately canceled because Jeju Air did not provide a list of candidates. Eastar Jet planned to propose amendments to the articles of incorporation to increase the total number of issued shares from 100 million to 150 million, the appointment of three new directors, and one new auditor. However, since Jeju Air did not submit the candidate list for directors and auditor, the appointment proposals could not be tabled. The new directors and auditor must be appointed from candidates nominated by Jeju Air, the acquiring party under the contract.

A Jeju Air official stated, "The deal closing date can be adjusted after both parties complete their preconditions, but currently, overseas corporate merger reviews and the Thai Eastar Jet issue remain unresolved," emphasizing, "Separately, the unpaid wages issue is fundamentally a matter to be resolved by the current management and major shareholders."

Because of this, the industry speculates that the acquisition itself may fail. In fact, Eastar Jet's management recently conveyed to the pilots' union and employee representatives during a meeting that "the likelihood of the acquisition deal being completed seems low" and requested cooperation for normalization. A representative of the Eastar Jet pilots' union said, "The corporate merger review in Vietnam is expected to conclude by mid-July, and the Thai Eastar Jet issue is also nearing resolution," adding, "Both the major shareholders and Jeju Air need to act more responsibly."

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