Hanjin KAL AGM D-1... 'High Ground Control' Cho Won-tae vs. 'Stronghold Formation' Three-Party Alliance

In the first round on the 27th, Cho Won-tae takes the lead at the general meeting... The three-party alliance likely to oppose with an 'extraordinary general meeting'

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] The fate of Hanjin Group, ranked 13th in the business world, hinges on the upcoming Hanjin KAL shareholders' meeting, which is just one day away. Chairman Cho Won-tae of Hanjin Group has secured a favorable position ahead of this general meeting, while the shareholder coalition aiming to normalize Hanjin Group (known as the "3-Party Alliance") is actively building a stronghold in preparation for a prolonged battle after the meeting.

According to business circles on the 26th, Hanjin KAL, the holding company of Hanjin Group, will hold its 7th regular shareholders' meeting on the morning of the 27th at the Hanjin Building in Sogong-dong, Jung-gu, Seoul. The agenda includes approval of financial statements, appointment of outside directors, appointment of other non-executive directors, appointment of inside directors, and amendments to the articles of incorporation. The biggest point of interest in this meeting is whether Chairman Cho can successfully secure reappointment as an inside director and maintain control over management. Additionally, attention is focused on whether candidates recommended by the 3-Party Alliance (3 inside directors and 4 outside directors) will be included on the board of directors.

The final choice of institutional investors and minority shareholders, who hold about 34% of Hanjin KAL shares, is also a matter of interest. Since neither side holds a majority stake, the outcome of management control could change depending on their decisions. In fact, recently some minority shareholders have formed a shareholder coalition and expressed support for the 3-Party Alliance.

◆ Securing the High Ground: Cho Won-tae = At present, Chairman Cho is highly likely to succeed in this "high ground battle." The court has dismissed all injunction lawsuits filed by the 3-Party Alliance, increasing the probability that Cho will gain an advantage in the shareholding competition. Due to the court's dismissal of the injunctions, the 3-Party Alliance's voting shares decreased from 31.98% to 28.78%. On the other hand, Chairman Cho secured allies such as Korean Air's self-insurance and employee association (3.70%), bringing his own and related parties' shares to 22.45%, plus allies Delta Air Lines (10.00%) and Kakao (1%), totaling at least 37.15% of shares. This creates a gap of more than 8 percentage points over the 3-Party Alliance.

Accordingly, a green light is on for Chairman Cho's reappointment as an inside director. Even assuming an attendance rate of 80-85% at the shareholders' meeting due to the management dispute, Chairman Cho only needs to secure an additional 3-8% to ensure reappointment. Currently, major proxy advisory firms such as ISS and the Korea Corporate Governance Service (KCGS) have sided with Chairman Cho.

A business insider familiar with Hanjin Group said, "Although the future is uncertain, it seems that Chairman Cho has gained the upper hand in this shareholders' meeting," adding, "I expect the shareholding gap secured to be larger than anticipated."

◆ Fortifying Positions: The 3-Party Alliance = In response to Chairman Cho's high ground, the 3-Party Alliance has entered a "fortification battle." The alliance, composed of private equity fund KCGI, Bando Construction, and former Korean Air Vice President Cho Hyun-ah, has recently continued to purchase Hanjin KAL shares, raising their stake to 42.13%. This is roughly equal to the approximately 42% stake secured by Chairman Cho.

With the 3-Party Alliance entering a fortification phase, the tactical battle between both sides is expected to continue. Even if the 3-Party Alliance loses this shareholders' meeting, they are likely to demand an extraordinary shareholders' meeting along with additional share purchases in the future. Even if the board rejects this, they can apply to the court for permission to convene an extraordinary meeting. The alliance also has ample "ammunition" for additional share acquisition. Bando Construction, a member of the alliance, is regarded in the industry as having sufficient financial resources to secure additional shares.

Chairman Cho's side is also expected to defend their position. Since their ally Delta Air Lines is unable to purchase additional shares due to the business downturn caused by COVID-19, Chairman Cho's side must find other white knights or devise clever strategies. Meanwhile, Hanjin Group has requested the Financial Supervisory Service to investigate and order the sale of shares, alleging that the 3-Party Alliance violated the Capital Markets Act.

The 3-Party Alliance stated, "We do not believe the outcome of this shareholders' meeting marks the end of efforts to normalize Hanjin Group," adding, "We will do everything possible with a long-term perspective and steady efforts to put the group back on the path to normalization."