Court: "Restriction on Third-Party Alliance's New Warrants Necessary for Company and All Shareholders' Interests"
[Asia Economy Reporter Yu Je-hoon] The court's dismissal of the injunction filed by the private equity fund (PEF) KCGI to prohibit the issuance of new shares by Hanjin KAL has given momentum to Korean Air's acquisition of Asiana Airlines.
The Seoul District Court Civil Division 50 (Chief Judge Lee Seung-ryeon) dismissed KCGI's injunction request filed on the 18th against Hanjin KAL on the 1st. Accordingly, the financial support through KDB Industrial Bank's participation in Hanjin KAL's third-party allotment capital increase scheduled for tomorrow (the 2nd) can proceed smoothly.
The court stated regarding KCGI's claim that the new share issuance infringes on existing shareholders' rights, "The alternative transaction method proposed by the three-party coalition cannot be considered a sufficient alternative to this new share issuance, and Hanjin KAL's decision to issue new shares was an inevitable choice to achieve management objectives," adding, "The restriction of the three-party coalition's subscription rights is largely justifiable for the benefit of the company and all shareholders."
Furthermore, addressing concerns that KDB's participation in the third-party allotment capital increase could change the shareholding structure, the court said, "Even if KDB is considered a friendly shareholder of Hanjin KAL's current management, its shareholding does not reach a majority," and "The three-party coalition can still attempt to change management control through share purchases or alliances with minority shareholders."
This injunction request was seen as a benchmark to determine whether the initial step of the approximate deal structure?KDB's participation in Hanjin KAL's third-party allotment capital increase, acquisition of exchangeable bonds (EB), Hanjin KAL's financial support to Korean Air, and Korean Air's acquisition of Asiana Airlines?could be successfully executed, and it is evaluated that the acquisition process can now proceed at a faster pace.
Hanjin KAL will lend 800 billion KRW secured through the third-party allotment capital increase and EB issuance to Korean Air, which will use this to pay a deposit of 300 billion KRW to Asiana Airlines and then begin due diligence. Korean Air will then acquire 300 billion KRW worth of Asiana Airlines convertible bonds (CB) by the end of this year to secure shares and hold an extraordinary general meeting in January next year to expand the authorized share capital for a capital increase.
Based on this, Korean Air will carry out a 2.5 trillion KRW capital increase in March and pay the interim payment of 400 billion KRW. In June, Korean Air will participate in Asiana Airlines' 1.5 trillion KRW third-party allotment capital increase. Through this, Korean Air will secure a 63.9% stake, incorporate Asiana Airlines as a subsidiary, and complete the acquisition.
Subsequently, post-merger integration (PMI) procedures for full integration of the two companies and mergers and acquisitions (M&A) among subsidiaries are expected to proceed. Immediately, KDB and the Hanjin Group are considering the three-party integration of low-cost carriers (LCCs) Jin Air, Air Busan, and Air Seoul, as well as the integration of other subsidiaries such as ground handling companies. Industry insiders expect that it will take about two to three years through these processes to ultimately create a mega carrier ranked seventh in the world.
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