[Invest&Law] Hoban Acquires LS Shares...A Negotiation Tool for Prolonged Dispute

Hoban's Acquisition of LS Shares Seen as a Strategic Move in Ongoing Legal Disputes
LS Forms Alliance with Hanjin Group to Secure "White Knight" Defense

Hoban Group's recent purchase of LS shares has been analyzed by the securities industry as a move to "increase its bargaining power in the ongoing dispute." LS, for its part, has formed a strategic alliance with Hanjin Group to defend its management rights.

According to the investment banking (IB) industry on May 20, Lee Yoojin, a researcher at Eugene Investment & Securities, stated in a report the previous day, "Hoban’s acquisition of LS shares can serve as a negotiation card in the ongoing litigation between its subsidiary Taihan Electric Wire and LS Cable & System. This move carries strategic significance beyond a simple financial investment."

Hoban and LS have been engaged in repeated legal disputes. In 2019, LS Cable & System filed a patent infringement lawsuit against Taihan Electric Wire over the 'Busduct Joint Kit.' Hoban acquired Taihan Electric Wire in 2021, and this year, the court finalized a partial victory for LS Cable & System, ordering Taihan Electric Wire to pay approximately 1.5 billion won in damages and to destroy related finished and semi-finished products.

Separately, the police are investigating allegations that LS Cable & System’s submarine cable plant design know-how was leaked to Taihan Electric Wire. Employees of Taihan Electric Wire and a design office have been criminally charged, and several search and seizure operations have taken place. Depending on the outcome of the investigation, there is a possibility that the case could expand into future civil and criminal lawsuits.

Amid these developments, it was reported in March that Hoban acquired approximately 3% of LS shares. Researcher Lee explained, "While avoiding the 5% disclosure requirement under the Capital Markets Act, this amount represents a strategic threshold that allows the exercise of shareholder proposal rights, the right to convene an extraordinary general meeting, and the right to inspect accounting books under the Commercial Act. Currently, 45 members of the LS owner family, including LS board chairman Koo Ja-yeol, collectively hold 32.1% of the shares, with each individual holding less than 3%."

LS is also stepping up efforts to defend its management rights. On May 16, LS issued exchangeable bonds (EB) worth 65 billion won to Korean Air, an affiliate of Hanjin Group, using 1.2% (387,000 shares) of its treasury stock as collateral. Hoban Construction recently increased its stake in Hanjin KAL from 17.44% to 18.46%. The moves by LS and Hanjin are seen as attempts to bring each other in as "white knights" through treasury stock holdings, in order to counter Hoban.

Researcher Lee stated, "While it is unlikely that Hoban will engage in shareholder activism in the short term, it is highly likely to exercise its shareholder rights once the submarine cable lawsuit becomes more active. If conditions such as an adjustment in LS’s stock price, internal rifts among the owner family, or changes in Hanjin KAL’s governance structure are met, Hoban may seek to further increase its stake."

She added, "Hoban’s purchase of LS shares is not simply an investment in a growth industry, but rather a strategic approach focused on securing bargaining power in litigation and the potential for internal structural changes within LS."