Delta Air Lines Inc., the largest airline in the United States by market cap and sales, has begun to buy additional Hanjin KAL shares as it declared before. The move seems to suggest that the U.S. carrier did not simply come forward as a white knight for the beleaguered Hanjin Group but made an investment in Hanjin KAL based on a long-term investment plan.
Experts say that a second round of the battle between Korea Corporate Governance Improvement (KCGI) and Hanjin Group over the group’s control has started as the home-grown activist private equity fund is raising funds from foreign investors to boost its stake in Hanjin KAL.
Delta Air Lines began to purchase additional Hanjin KAL shares upon approval of the U.S. Securities and Exchange Commission (SEC), according to investment banking (IB) industry sources on July 23. An official from a foreign securities firm said, “Delta has started to purchase shares.”
Delta Air Lines made a surprise announcement on June 21 that it has acquired a 4.3 percent stake in Hanjin KAL and declared that it would raise the stake to 10 percent. Then, the U.S. airliner took follow-up measures in a month. If the firm increases its stake in Hanjin KAL to more than 5 percent, it has to notify the South Korean financial authorities and stock exchange of its stock ownership.
Delta Air Lines is known to have bought 40,000 shares of Hanjin KAL through Goldman Sachs on July 23. It is equivalent to 0.07 percent in terms of stake. Foreign securities companies went on a buying spree from July 16 to 22, including Credit Suisse Securities with 101,369 shares, JP Morgan Securities with 46,710 shares, UBS with 23,884 shares and Goldman Sachs with 9,423 shares. As Goldman Sachs came forward to purchase Hanjin KAL shares during the intraday trading, the stock price rose to as high as 30,500 won (US$25.87) and Hanjin KAL’s preferred shares showed a whopping 20 percent increase. Its trading volume surged to 1.30 million shares, which was four times higher than usual.
Many people expressed doubt when Delta Air Lines said last month that it secured a 4.3 percent stake in Hanjin KAL and would further raise its stake. They said it was uncertain that the airliner would really put its plan into action.
However, more and more people have started to believe that Delta Air Lines is making a long-term investment in Hanjin KAL after the airliner replied to KCGI on July 9, saying, “Our investment in Hanjin KAL is intended to strengthen and deepen relations with our business partner. We are investing in Hanjin KAl as a long-term investor based on the company’s future and our relationship with it.”
Kang Sung-jin, an analyst at KB Securities, said that the recent purchase of Hanjin KAL shares by Delta Air Lines would not threaten Hanjin Group’s managerial control. However, he said, “Assuming that Delta Air Lines acquired the stake in Hanjin KAL to maximize its profits, the U.S. carrier will seek to maximize its influence by holding the casting vote.” It means that the U.S. airliner can contact KCGI to threaten Hanjin’s management rights as the occasion demands. It is right that Delta Air Lines has supported Hanjin Group in consideration of its lucrative joint venture with Korean Air Lines, but the U.S. airliner can temporarily join hands with KCGI, which is the enemy of the partner, when it has to make business requests to Hanjin Group, according to experts.