KAL pulls out of bidding for KAI over shares’ price

Korean Air Lines (KAL) decided to withdraw from the second round of bidding for Korea Aerospace Industries (KAI), the country’s sole aircraft maker.

The nation’s largest carrier released a short statement yesterday that it is pulling out because the price is too high.

“Our position to acquire KAI at an appropriate price and elevate the aerospace industry to one of Korea’s locomotives for future growth has not changed,” the company said in a release. “But after going through preliminary due diligence, we decided that the share price for KAI is not set properly, so we decided to pull out from this bidding.”

According to the Korea Finance Corporation (KoFC), the state-lender in charge of the sale of KAI, the airline didn’t file bidding documents by the deadline of 3 p.m. yesterday, while another bidder, Hyundai Heavy Industries, the world’s largest shipbuilder, submitted a bid for a 41.75 percent stake that was estimated to be worth around 1.5 trillion won ($1.39 billion), according to industry observers. As of yesterday, KAI shares were traded at 26,700 won per share.

The KoFC, which is the biggest shareholder of KAI with a 26.41 percent stake, was to select a preferred bidder within this month, but since KAL dropped out, the bidding will fall apart. The law requires at least two bidders.

The first round of bidding in August also failed due to lack of competition. KAL, an affiliate of Hanjin Group, was the sole bidder then.

Last month, Cho Won-tae, KAL’s managing vice president and son of Hanjin Group Chairman Cho Yang-ho, told media that the company has prepared funding to acquire KAI, but would not continue with the bid if the price was too high.

Last month, the airline even revealed some plans on how it would operate KAI if it was acquired. KAL said that two companies would be managed in the way Hyundai Motor Group manages Hyundai Motor and Kia Motors.

By Joo Kyung-don [kjoo@joongang.co.kr]