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MarketScreener Homepage  >  Equities  >  KOREA EXCHANGE  >  Korean Air Lines Co Ltd    003490   KR7003490000

KOREAN AIR LINES CO LTD

(003490)
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'White Knight' Delta buys stake in Korean Air parent, dampens activist threat

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06/21/2019 | 03:54am EDT
FILE PHOTO: Delta airlines counter is seen inside of the Commodore Arturo Merino Benitez International Airport in Santiago

SEOUL/CHICAGO (Reuters) - Delta Air Lines bought a small stake in Korean Air Lines Co's parent company and said it wants to increase it to 10%, giving a boost to the management of South Korea's top carrier that seeks to thwart a local activist fund's challenge.

Shares of the parent, Hanjin Kal Corp, tumbled 15 percent on Friday, as Delta's move dashed investor hopes of a battle to control the family-run group that had driven up shares since the death of patriarch Cho Yang-ho in April.

Korean Air, which has a joint venture with Delta since last year, said on Friday it believes Delta's 4.3 percent stake buy intends to ensure the 'stable management" of the company and support for its leadership.

Should the No. 2 U.S. carrier raise its stake to 10% in Hanjin Kal, the airline's founding family and its allies will have a total stake of 39%, versus the 16% stake held by the activist fund, Korea Corporate Governance Improvement (KCGI).

"Delta played a role as a white knight for Hanjin," said Choi Nam-gon, an analyst at Yuanta Securities.

"Now it would be impossible for KCGI to take control of the group. The stake buy removes the chance of a management battle at Hanjin Group," he said.

KCGI said in a statement that if Delta's investment decision intends to "simply defend the management rights of the controlling family members, this would go against the honour and principles that it has built so far."

It proposed Delta, backed by U.S. investor Warren Buffett, work together to eliminate inefficiencies and improve management transparency at the Hanjin Group.

Korean Air shares fell 2.6% and its budget affiliate Jin Air Co Ltd rose 0.2% in the wider market that was down 0.3%.

KOREAN AIR SUCCESSOR

Korean Air has been plagued in recent years by a series of scandals involving its founding family members.

In April, the tycoon suddenly died at age 70, just weeks after shareholders decided to end his 27-year tenure on the airline's board, in a show of growing shareholder activism in Asia's fourth-biggest economy that has long been dominated by family-owned conglomerates.

The group subsequently appointed his only son Walter Cho, 43, as CEO and chairman, but the company has yet to inform regulators about a definitive succession plan. He and his two sisters have small stakes in Hanjin Kal, in which the late Cho has a 17.8% stake.

Against that backdrop, KCGI raised its stake to nearly 16%, fuelling speculation about an impending ownership battle at the conglomerate.

Delta Chief Executive Ed Bastian said earlier this month he had "a lot of confidence" in Walter Cho, noting their friendship had gone back 20 years.

"The investment demonstrates Delta’s commitment to the success of its joint venture with Korean Air," Delta said in a statement. The venture includes 290 U.S. destinations and over 80 in Asia.

The U.S. airline did not disclose how much it paid for the 4.3% stake. It also did not say who it bought the stake from or when it may raise it to 10 percent.

Atlanta-based Delta has been growing internationally both through joint ventures - which allow airlines to coordinate fares and schedules while building a presence in new markets - and direct equity investments, which help airlines align their respective strategies.

Delta also owns stakes in Grupo Aeromexico, Air France KLM, China Eastern, Brazil's Gol and Virgin Atlantic, and has been negotiating a stake in Alitalia.

Shares in Delta closed down 0.7% at $55.97 in New York on Thursday.

(Reporting by Tracy Rucinski in Chicago and Hyujoo Jin in Seoul; Additional reporting by Rachit Vats in Bengaluru, Ju-Min Park and Hayoung Choi in Seoul and Jamie Freed in Singapore; Editing by G Crosse, Peter Cooney and Muralikumar Anantharaman)

By Hyunjoo Jin and Tracy Rucinski

Stocks mentioned in the article
ChangeLast1st jan.
DELTA AIR LINES INC. -2.79% 60.91 Delayed Quote.22.06%
HANJIN KAL CORP End-of-day quote.
KOREAN AIR LINES CO LTD End-of-day quote.
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Financials (KRW)
Sales 2019 12 750 B
EBIT 2019 830 B
Net income 2019 409 B
Debt 2019 13 425 B
Yield 2019 0,88%
P/E ratio 2019 8,51x
P/E ratio 2020 7,10x
EV / Sales2019 213x
EV / Sales2020 199x
Capitalization 2 708 B
Chart KOREAN AIR LINES CO LTD
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Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 17
Average target price 39 911,76  KRW
Last Close Price 28 550,00  KRW
Spread / Highest target 57,6%
Spread / Average Target 39,8%
Spread / Lowest Target -7,18%
EPS Revisions
Managers
NameTitle
Yang-Ho Cho Chairman & Co-Chief Executive Officer
Won-Tae Cho President, Co-Chief Executive Officer & Director
Gi-Hong Woo Co-Chief Executive Officer & Director
Eun-Yong Ha Executive Director & Head-Finance
Jae-Il Kim Outside Director
Sector and Competitors
1st jan.Capitalization (M$)
KOREAN AIR LINES CO LTD2 307
DELTA AIR LINES INC.22.06%39 458
UNITED CONTINENTAL HOLDINGS INC12.06%24 107
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RYANAIR HOLDINGS-5.49%12 585
CHINA SOUTHERN AIRLINES COMPANY11.30%12 038