Hanjin KAL shares surge 30% as ownership battle heats up

Hanjin KAL shares hit the daily upper limit Tuesday as the prospect of a renewed battle for management control drove a buying frenzy. Hanjin Group Chairman Cho Won-tae moved Monday to purchase 37.05 billion won ($27.6 million) worth of shares, matching Hoban Group's push to expand its stake and sending both sides' race for ownership into high gear.

According to Korea Exchange, Hanjin KAL closed Tuesday up 29.97 percent from the previous session at 175,200 won. The stock opened at 143,000 won and extended its gains throughout the day before hitting the upper limit.

Hanjin KAL preferred shares also closed up 30 percent at 39,000 won. Analysts attributed the heightened volatility in the preferred shares to the relatively thin float — the company has approximately 530,000 preferred shares listed.

Hanjin KAL had already surged 8.80 percent Monday to close at 134,800 won, after news broke that Hoban Group had filed for a merger review with the Korea Fair Trade Commission over a change in its largest shareholder status. After the regular session closed, Cho's share purchase plan was disclosed, pushing the stock even higher in after-hours trading.

According to the Financial Supervisory Service's DART system, Cho signed a share purchase agreement to acquire 325,000 common shares of Hanjin KAL at 114,000 won per share, for a total of 37.05 billion won.

The purchases are scheduled to take place through block trades outside regular trading hours between Dec. 3 and Jan. 1. Once completed, Cho's total holdings will increase to 4,194,612 shares, lifting his personal stake — based on total issued shares including preferred stock — from 5.75 percent to 6.23 percent.

How the share purchase agreement will ultimately affect Hanjin KAL's stock price depends on the specifics of the deal. If Cho acquires shares from the open market through a block trade, the combined stake held by Cho, his specially related persons and friendly shareholders would grow, strengthening his position in the ownership contest.

If the shares being purchased belong to existing specially related persons or friendly shareholders, Cho's personal stake would rise but the overall friendly-shareholder bloc would remain largely unchanged. The filing does not identify the seller. The agreed purchase price of 114,000 won per share stands well below the current market price, which has climbed into the 140,000 won range.

"Acquiring additional shares through existing friendly parties may not carry much practical significance in terms of expanding actual control," said Lee Hwang, a professor at Korea University School of Law. "However, given the uncertainty over how friendly shareholders may act in the future, this could be a move to directly secure shares and solidify control."

Whether Hoban Group will make another move to acquire additional shares is also a key question. The conglomerate recently purchased more Hanjin KAL shares on the open market and last month filed a merger notification with the Korea Fair Trade Commission. The filing is widely seen as a precautionary step taken in anticipation that its additional purchases may have pushed its stake past that of Cho and his specially related persons, making it the largest shareholder.

As of the end of June this year, Cho and his specially related persons held a combined 20.57 percent stake in Hanjin KAL. Other major shareholders include US carrier Delta Air Lines at 14.90 percent, Korea Development Bank at 10.58 percent and the national pension fund at 5.11 percent.

Market watchers are closely monitoring what major shareholders such as Korea Development Bank and the national pension fund will do next, though analysts say neither is likely to move to buy or sell shares anytime soon. "Neither Korea Development Bank nor the national pension fund appears to have much incentive to sell their current holdings," one securities industry official said. "With no set deadline for a sale, they are unlikely to take any action."

Another securities industry official said Hoban Construction had steadily built up its Hanjin KAL stake to become the largest shareholder, but that it did not yet pose an immediate threat to management control when Cho's friendly shareholder bloc was taken into account. "If Hoban Construction is aiming for management control, there is little reason to start a dispute before acquiring Korea Development Bank's stake — a full-blown ownership battle would only drive up the cost of acquiring shares," the official said.

The official added that whether Hoban Construction was a simple investor seeking a return or was genuinely interested in taking control would become clear through any future disclosure of a change in its stated purpose for holding the shares. "If it changes the stated purpose to one of influencing management, that would be a clear signal that a serious ownership battle has begun," the official said.

The contest could extend beyond shareholding to a battle for control of the board. With the gap between the two sides' stakes relatively narrow, management control may ultimately hinge on board composition. "As seen in the Youngpoong ownership dispute, the central question will ultimately be which side controls the board," Lee said. "Since neither side can secure management control through its own shares alone, the key is building enough friendly shareholder support to lead board and shareholder meeting votes — and the fact that friendly shareholders can change their position at any time is an important variable."