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Hanjin KAL stocks plunge as hostile takeover bid comes to standstill

A promotional image of an aircraft of Korean Air Lines (Korean Air Lines)
A promotional image of an aircraft of Korean Air Lines (Korean Air Lines)
Shares of Hanjin KAL plunged Monday as a hostile takeover bid of an activist investor group came to a standstill the week prior.

Hanjin KAL, the holding company of the Hanjin conglomerate that controls flag carrier Korean Air Lines, dipped 7.8 percent on the Korean bourse at Monday’s close, as nearly 300 billion won ($266 million) in market cap evaporated within a single day.

Hanjin KAL‘s share price hit a 52-week low Monday morning, trading as low as 51,400 won apiece.

This comes soon after a private equity firm-led investor group announced Friday that the consortium had been disbanded, five months after state-run lender Korea Development took the place of activist investors to play a role in keeping the ownership family’s governance in check and to sponsor Korean Air Line’s acquisition of rival Asiana Airlines.

The departure of the activist consortium signaled that the event-driven increase in Hanjin KAL stock price was coming to an end.

Typically, a target company subject to a hostile takeover experiences an upshot in stock price as the acquirer attracts shareholders with a high bid price to attain more than 50 percent stake in the listed company.

The bid was within the sights of the consortium.

In the case of Hanjin KAL, the activist group -- comprising the private equity Korea Corporate Governance Improvement, the estranged heiress and construction firm Bando -- had often presented the bid price at roughly between 70,000 won and 95,000 apiece since March 2020, just as the COVID-19 crisis sent the Hanjin KAL share price to below 40,000 won. This allowed the investor group‘s ownership to reach 45.23 percent as of June. In the meantime, Hanjin KAL’s stock price peaked at 111,000 won in late April.

But things took a new twist as the KDB injected 800 billion won in capital in exchange for 10.66 percent of the Hanjin KAL common shares and 300 billion won of exchangeable bonds in December, in order to sponsor Korean Air‘s acquisition of Asiana Airlines. Meanwhile, the consortium saw its control diluted to 40.39 percent in December.

A stock price decline followed, even after KDB bought 10.66 percent of Hanjin KAL ordinary stocks for 70,800 won apiece.

Despite the plunge Monday, the KDB’s acquisition of Hanjin KAL securities is not still necessarily a losing bet.

Under the terms, the KDB was given an option to exchange the debt instrument for up to 12.3 million common shares of Hanjin KAL, or 18.6 percent stake, at a conversion price of 24,317 won apiece. The spread between the market price of the shares and their conversion price could translate into KDB‘s financial return if the state-run institution decides to exercise the option to exchange the instrument with the shares. Otherwise, the exchangeable bonds will remain debt that offers KDB a 9.5 percent yield for a five-year investment as it matures.

By Son Ji-hyoung (