Delta Air Lines Inc.'s surprise move to invest in Hanjin KAL, the parent company of its joint venture partner Korean Air Lines Co., will help its partner fend off growing pressure from a local activist fund to improve its corporate governance, industry sources said Friday.
On Thursday (U.S. time), Atlanta-based Delta said it had acquired a 4.3 percent stake in Hanjin KAL to grow further in Asian markets, and it will increase its stake in Hanjin KAL to 10 percent over time. Hanjin KAL owns 30 percent of flagship Korean Air.
Delta didn't provide how much it spent on the purchase. The 4.3 percent stake is valued at US$88 million according to Friday's closing price.
The advent of Delta on the battlefield between Hanjin KAL and the Korea Corporate Governance Improvement (KCGI) is a dramatic development and could not come at a better time for Hanjin Group, the country's 14th-largest conglomerate.
Delta and Korean Air formed a joint venture in May last year to collaborate on the industry's most robust trans-Pacific routes, providing customers access to more than 290 U.S. destinations and over 80 in Asia.
"Delta's stake purchase is expected to help Korean Air defend its management rights against any attacks of activist hedge funds, such as the KCGI," a Korean Air official said over the phone.
Analysts said Delta will act as a friendly force for Hanjin KAL and Korean Air.
"As the U.S. airline market is saturated, Delta has invested in stakes of Asian airlines to continue to seek growth. Delta's investment in Korean Air appears to be aimed at helping the partner focus on businesses (with stable management rights)," Um Kyung-a, an analyst at Shinyoung Securities Co., said.
With Delta's investment, KCGI, which now owns a 15.98 percent stake in Hanjin KAL, may face an uphill battle over bringing changes to the logistics-centered business group, according to the sources.
Early this month, KCGI -- the second-largest shareholder in Hanjin KAL -- demanded a Seoul court designate an auditor to review Hanjin KAL's appointment process for a new chairman.
Hanjin KAL's board named late Chairman Cho Yang-ho's only son, Won-tae, as new chairman in April following his father's death. Hanjin KAL said it will respond to the move according to legal procedures.
The Cho family and other relatives together hold a 28.93 percent stake, including 17.84 percent held by the late chairman, in Hanjin KAL. The National Pension Service owns a 7.34 percent stake in the firm.
In a statement released Friday, KCGI said that if the purpose of Delta's investment decision is only to help protect the Hanjin Group founding family's management rights, it runs against Delta's honor and principles that it has established over a long time.
The homegrown fund asked for a meeting with the Delta CEO to join forces with each other to monitor Hanjin's efforts to enhance its governance structure.
On Friday, Hanjin KAL plunged 15 percent to 34,300 won and Korean Air fell 2.6 percent to 30,500 won, far underperforming the broader KOSPI's 0.3 percent loss.
"Some of the investors who betted on a battle with activist funds like KCGI appear to be selling the airline stocks. As Delta said it will increase its investment in Hanjin KAL, they are offloading the stocks on profit taking," Um said.(Yonhap)