MBK Initiates Takeover of Korea Zinc Through Public Tender Offer
Korea Zinc Strongly Opposes Youngpoong's Hostile M&A Attempt
After 75 years of joint management, Yeongpung and Korea Zinc have finally split due to a management rights dispute. At the center of the conflict is MBK Partners, the largest private equity fund (PEF) operator in Korea.
Yeongpung has teamed up with MBK Partners to reclaim management rights, while Korea Zinc Chairman Choi Yoon-beom faces the threat of losing control. Both sides are expected to fiercely compete for the support of the National Pension Service and minority shareholders.
Alliance of MBK and Yeongpung... Attempt to Acquire Management Rights
On the 13th, MBK Partners and Yeongpung announced the start of a tender offer aimed at securing stable management rights of Korea Zinc. The tender offer will run until October 4, with an offer price of 660,000 KRW per share. This price includes a premium of 27.7% and 30.1% over the average closing prices of the past three and six months, respectively. Korea Zinc closed at 556,000 KRW on the KOSPI market the previous day.
MBK Partners plans to purchase approximately 7% to 14.6% of Korea Zinc’s shares together with Yeongpung. The total tender offer amount is expected to reach about 2 trillion KRW. If the number of shares tendered reaches the target quantity, the purchase will be completed; if it exceeds the target, shares will be purchased proportionally by allocation. Proportional allocation means that not all shares are purchased, but only the target quantity is divided proportionally among shareholders based on the number of shares tendered.
Yeongpung has also agreed to jointly exercise voting rights with MBK Partners through a shareholders’ agreement. This contract allows MBK Partners to secure one more share than Yeongpung, effectively making MBK Partners the largest shareholder of Korea Zinc.
New Phase in Management Rights Dispute... Warning of Capital Market Act Violation
With MBK Partners entering the fray, Chairman Choi’s defense of management rights has become even more difficult. Yeongpung claims that Chairman Choi distorted the governance structure and paralyzed the board’s functions by using minority shares of Korea Zinc, and has filed a provisional injunction for inspection and copying of accounting books against him at the Seoul Central District Court. They also allege that Chairman Choi is involved in breach of trust, stock price manipulation, and violation of fiduciary duties.
MBK Partners stated regarding the management rights acquisition attempt, "The allegations and issues raised against Chairman Choi are separate from the efforts made by other members of the Korea Zinc board and management for the company’s growth and development. We will increase Korea Zinc’s corporate value for the benefit of all shareholders, including the Choi family, and further strengthen and develop business partnerships with Hyundai Motor, LG, and Hanwha."
MBK Partners and Yeongpung strongly warned that Korea Zinc’s acquisition of treasury shares during the tender offer period would violate the Capital Market Act. They sent official letters to Korea Zinc’s management, board members, and the trust company with which the treasury shares trust contract was signed, stating that such actions could violate Article 140 of the Capital Market Act, which prohibits separate purchases.
They also pointed out that purchasing treasury shares could constitute a breach of directors’ fiduciary duties and stock price manipulation. According to Article 140 of the Capital Market Act, a tender offeror cannot purchase the target company’s shares outside the tender offer during the tender period, and this applies to special related parties of the target company as well.
MBK Partners and Yeongpung emphasized that indirect acquisition of treasury shares through trust contracts is also prohibited. They warned that if management or the board approves or tacitly allows treasury share purchases that could cause damage to Korea Zinc, they may be held liable for damages.
Korea Zinc Strongly Opposes "Hostile and Predatory M&A"
Chairman Choi Yoon-beom of Korea Zinc delivering a welcome speech at the groundbreaking ceremony of the nickel smelter held at Korea Zinc in Ulju-gun, Ulsan, on November 15 last year, attended by Prime Minister Han Duck-soo. [Image source=Yonhap News]
Korea Zinc strongly opposed Yeongpung and MBK Partners’ attempt to acquire management rights, calling it a hostile and predatory M&A.
Korea Zinc claimed that MBK Partners has a reputation as a predatory corporate raider in Korea and that after acquiring management rights, there is a possibility of reselling shares to foreign capital. This could lead to the leakage of core technologies related to secondary battery materials overseas, posing a significant threat to national key industries.
Furthermore, Korea Zinc criticized Yeongpung’s Seokpo Smelter for suffering serious problems due to various environmental pollution and major accident incidents, accusing Yeongpung of focusing solely on securing management rights rather than normalizing management.
Outcome of Management Rights
Chairman Choi Yoon-beom of Korea Zinc (left) and Jang Hyung-jin, Advisor of Youngpoong Group [Photo by each company]
Chairman Choi’s side has defended management rights through treasury share purchases and alliances with large corporations, but faces a tough battle against the strong financial power of Yeongpung and MBK Partners. The tender offer by MBK Partners and Yeongpung is expected to be a crucial turning point in the management rights dispute.
The 7.8% stake held by the National Pension Service in Korea Zinc could be a key variable in the dispute. Yeongpung holds about 33.13%, and Korea Zinc about 33.99%, so neither side has a majority stake. Jang Jae-hyuk, a researcher at Meritz Securities, said, "For Yeongpung to exceed half of the shares, it needs to purchase an additional 16.87% (1.94 trillion KRW based on current market capitalization), and for Korea Zinc to exceed half, it needs an additional 16.02% (1.85 trillion KRW). It is likely that Korea Zinc will have a white knight purchase additional shares."
As of 1:07 PM on the day, Korea Zinc’s stock price surged to 665,000 KRW, up 19.6% (109,000 KRW) from the previous day, due to the impact of the tender offer by Yeongpung and MBK.
MBK Partners also intervened in the management rights dispute of Hankook Tire last year. At that time, MBK Partners attempted a tender offer for shares of the holding company Hankook & Company in cooperation with former advisor Cho Hyun-sik and his daughter Cho Hee-won. However, the tender offer failed as the minimum purchase quantity was not met.
Earlier, as the management rights conflict with Yeongpung intensified, Korea Zinc relocated its headquarters in July from the Yeongpung Building in Gangnam-gu, Seoul, to the Gran Seoul Building in Jongno-gu, Seoul. Since the Yeongpung Building is owned by Yeongpung, the largest shareholder of Korea Zinc, this move is interpreted as an attempt to separate workspaces amid the management rights dispute between the two companies.
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