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Court ruling clears 1st hurdle for Korean Air's Asiana takeover

All News 14:39 December 01, 2020

SEOUL, Dec. 1 (Yonhap) -- A South Korean court on Tuesday rejected an injunction filed by a local equity fund against Hanjin KAL's stock sales meant to fund its affiliate Korean Air Lines Co.'s takeover of smaller rival Asiana Airlines Inc., clearing one of the hurdles for the largest deal ever in the airline sector.

The Seoul Central District Court dismissed the injunction filed by the Korea Corporate Governance Improvement (KCGI) against Korean Air's parent Hanjin KAL's stock sales worth 800 billion won (US$723 million) to Asiana's main creditor Korea Development Bank (KDB).

Last month, Korean Air Lines said it will acquire Asiana Airlines in a deal valued at 1.8 trillion won. The deal would create the world's 10th-biggest airline by fleets.

Korean Air plans to raise 2.5 trillion won via rights offerings early next year. Of the proceeds, it will spend 1.5 trillion won to buy new shares to be sold by Asiana and 300 billion won worth of Asiana perpetual bonds.

Hanjin KAL is set to participate in the 2.5 trillion won worth of stock sales by Korean Air.

The image shows an Asiana Airlines passenger jet against the background of the Kumho Asiana Group and Korean Air headquarters. (Yonhap)

KCGI brought the issue to the court on Nov. 18, arguing that Hanjin KAL's share sale to a designated third party hurts its existing shareholder value.

A day earlier, the KDB signed an investment agreement with Hanjin KAL under which Cho Won-tae, chairman of Hanjin Group and Korean Air, provided all of his 6.52 percent stake in Hanjin KAL valued at 170 billion won as security to creditors.

The KDB said it has the right to sell the stake offered by Cho and have him quit the chairman position if the combined carrier fails to meet expectations in terms of performance and post-merger integration.

But the KCGI, the biggest shareholder in Hanjin KAL, expressed concerns that Hanjin KAL may suffer financial damage unless the deal goes as planned, though the KDB said the holding firm will not have to pay compensation for any damage under the agreement.

The legal dispute comes as the three-party alliance led by the chairman's elder sister Cho Hyun-ah, who gained global notoriety for the "nut rage" incident in 2014, took issue with the Asiana takeover plan.

Chairman Cho, 44, had sparred with Hyun-ah, 45, as she formed the alliance with the KCGI and local builder Bando Engineering & Construction Co. in January.

The alliance argued that inviting a professional manager would improve Hanjin Group's management, financial status and shareholder value.

But the alliance failed to dethrone the chairman and is widely expected to oust Chairman Cho at Hanjin KAL's shareholders meeting in March next year.

The alliance has recently increased its combined stake in Hanjin KAL to 46.71 percent, higher than the 41.3 percent held by Won-tae, his mother, younger sister, related parties, Delta Air Lines, Inc. and Kakao Corp., the operator of the country's leading messaging app.

This illustrated image shows Hanjin Group Chairman Cho Won-tae (R) and his elder sister Hyun-ah with Hanjin Group's logo in the background. (Yonhap)


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