SEOUL -- Activist investor Korea Corporate Governance Improvement announced on Monday it has raised its stake in Hanjin-KAL to 13.47%, setting the stage for an ownership battle over the country's largest transportation conglomerate following the death of its Chairman Cho Yang-ho on Sunday.
KCGI said it bought a further 0.79% stake in Hanjin-KAL on the stock market over the last three weeks. The fund has been pressuring Hanjin-KAL, the holding company of Korean Air Lines, to improve its corporate governance since buying a 9% stake in the company in November. In late March, Hanjin-KAL fought off an attempt by the fund to unseat a director close to the late chairman.
KCGI declined to comment on its recent stock purchase. Shares of Hanjin-KAL jumped 20.63% to 30,400 won on Monday following news of the chairman's death on expectations of improved corporate governance at the company. The benchmark Kospi was up 0.04% to 2,210.60.
Analysts say a battle for ownership of the conglomerate is now likely. Including the late chairman's stake, the Cho family owns 28.95% of Hanjin-KAL, followed by KCGI with 13.47%. The National Pension Service is the third-largest shareholder with a 6.64% stake.
"I don't think that Cho family has a big enough stake because it needs at least a 33% stake to defend its managerial rights under commercial law," said Park Ju-keun, president of CEO Score, a corporate analysis company. "KCGI will demand many things [of Hanjin-KAL] to maximize its investment value."
Park said the Cho family is expected to inherit the entire 17.84% stake owned by Chairman Cho in order to retain their influence, but he did not rule out the possibility of a family feud, which could threaten the family's continued ownership. "If the three siblings fight over managerial rights of the company, it would provide KCGI a chance to flex its muscles," he said.
Cho has three children. His son, Won-tae, is president of Korean Air, while daughter Hyun-ah, a former vice president of the airline, was forced out of management following her involvement in the "nut rage" scandal of 2014. The other daughter, Hyun-min, resigned from her position as vice president of the airline last year after she allegedly physically abused an employee of an advertisement agency.
Kang Seong-jin, an analyst at KB Securities, agreed with Park on the importance of the inheritance process. Cho's wife and children will have to pay inheritance taxes estimated at 162.5 billion won, which may lead them to sell some of the shares, he said.
"How to inherit Cho's stake in Hanjin-KAL will be the key factor in the group's corporate governance and the stock prices of its main affiliates," Kang said. "If the inheritance process does not go smoothly, it is expected that KCGI will strengthen its influence fast."