MBK "We Do Not Consider Failure in Korea Zinc Tender Offer... Purchase Price Is Sufficiently Attractive" [Q&A]

"Daehang Tender Offer, Practically Difficult"

Yeongpung and MBK Partners, who have launched a tender offer for Korea Zinc, expressed confidence in the success of the tender offer.

On the 19th, at a press conference held at Lotte Hotel in Jung-gu, Seoul, Kim Kwang-il, Vice Chairman of MBK Partners, emphasized, "We are not considering the scenario of a failed tender offer," and added, "We believe we can secure at least the minimum 7% stake."

He also stated, "To counter the tender offer, both price and volume must surpass ours," and said, "While theoretically possible, securing a stake to become the largest shareholder through a counter tender offer is very difficult."

On the 19th, at a press conference related to the public tender offer of Korea Zinc held at Lotte Hotel in Jung-gu, Seoul, Kang Sung-doo, President of Youngpoong, Kim Kwang-il, Vice Chairman of MBK Partners, and Lee Sung-hoon, lawyer at Baker McKenzie Korea, are answering questions from the press.
[Photo by Lee Sung-min]

On that day, Korea Zinc's stock price soared to the 700,000 KRW range, exceeding the tender offer price. Vice Chairman Kim said, "The current price increase is due to individual investors," and added, "From the perspective of institutional investors, the current price is likely attractive enough," indicating no plans to raise the purchase price.

Regarding the opposition to the tender offer expressed by the Korea Zinc labor union and Ulsan City, he said, "There was a lack of explanation," and promised, "We will sufficiently explain our plans to make efforts in job creation and other areas."

Below is a Q&A session with Kang Sung-doo, President of Yeongpung; Kim Kwang-il, Vice Chairman of MBK Partners; and Lee Sung-hoon, lawyer at Baker McKenzie Korea.

There are concerns that Chinese capital will flow in through this tender offer. Is there a plan to delist after the tender offer?

(Kim Kwang-il, Vice Chairman of MBK Partners) The proportion of Chinese capital is only around 5%, so it has no impact on our investment. There is no plan for delisting either.

Regardless of China, is there an exit plan?

(Kim Kwang-il, Vice Chairman of MBK Partners) It is not yet the stage to discuss an exit. We plan to hold for a long time. But to be clear once again, we will not sell to China. We promise to keep this. If we succeed in securing management rights, we believe it is desirable for a domestic conglomerate to take over. Korea Zinc’s technology is quite good, and opportunities to own a global number one industry are rare.

Are there plans to raise the tender offer price? What about the board composition?

(Kim Kwang-il, Vice Chairman of MBK Partners) We expect institutional investors to mainly respond to this tender offer. Among the other shareholders targeted, the individual investor ratio is only about 2-3%. While individual investors are welcome, from an institutional perspective, the current price (660,000 KRW) is considered attractive. Regarding the board, since our largest shareholder side was not sufficiently represented, we are considering additional appointments.

What was the basis for deciding the tender offer volume? What is the specific shareholding after success?

(Kim Kwang-il, Vice Chairman of MBK Partners) If we secure the maximum quantity, we will hold about 48% of issued shares, which exceeds 50% of voting rights. Even if we secure the minimum 7%, combined with Yeongpung Precision’s shares, we will hold about 44% of voting rights. This is a choice considering the shareholders’ meeting. Not all other shareholders attend 100% of shareholders’ meetings. Considering attendance rates over the past two years, holding about 44% voting rights should allow us to win at the meeting. We could have set the minimum volume at 14% to secure at least 50%, but we set it more conservatively. Also, we did not assume all other shareholders would support Chairman Choi Yoon-beom. We believe the suspicions we raise are reasonable concerns anyone could have.

It is expected that about 2 trillion KRW will be needed if the tender offer succeeds. If call options are exercised, up to 4 trillion KRW may be required. How will you raise the funds?

(Kim Kwang-il, Vice Chairman of MBK Partners) We have plans. We calculated all the necessary basic amounts after the tender offer success and started. Most of the investment will be from our fund’s equity, and 40-50% will be financed through borrowings.

Improving governance through the tender offer seems like activist fund behavior. Is MBK Partners entering the activist fund domain with this tender offer?

(Kim Kwang-il, Vice Chairman of MBK Partners) We do not consider ourselves activists. Activism involves buying over 5% without any agreement with the largest shareholder, raising issues, and if not agreed, launching a tender offer. We invested with the largest shareholder’s agreement.

If the tender offer fails, will the cooperation agreement with Yeongpung still be valid?

(Kim Kwang-il, Vice Chairman of MBK Partners) We need to discuss the scenario after failure further. But we do not expect failure. We believe we can secure at least the minimum 7% stake.

MBK Partners is currently pushing two investments that exclude existing management consecutively. How do limited partners (LPs) view this approach?

(Kim Kwang-il, Vice Chairman of MBK Partners) Previously, we were supporting another major shareholder, but this time we are becoming the largest shareholder and exercising management rights, so it is different. Saying we are antagonistic to existing management is inaccurate; we value the rest of the management highly. We only want to verify suspicions related to Chairman Choi Yoon-beom, who currently makes decisions. We believe it is wrong for someone holding 2.2% to act as the company owner and decide assets arbitrarily.

Chairman Choi Yoon-beom and Korea Zinc affiliates are considered special related parties, so they cannot directly acquire shares through counter tender offers. Is it legally possible to resolve this issue?

(Lee Sung-hoon, Baker McKenzie Korea lawyer) Currently, Chairman Choi Yoon-beom, his family executives, and affiliated companies are all classified as special related parties. Therefore, under Article 140 of the Capital Markets Act, they are subject to a separate prohibition on purchase. However, the Enforcement Decree of the Capital Markets Act states that if special related parties prove they do not have joint ownership, they are not considered special related parties. The law does not specify how to prove this.

It means Chairman Choi can purchase personally. How feasible is this?

(Kim Kwang-il, Vice Chairman of MBK Partners) Theoretically not impossible but difficult. The SM Entertainment case is a milestone. Without legitimate business reasons, one should not participate in tender offers. If an unrelated third party participates to help someone, controversy may arise. Also, to counter a 2 trillion KRW tender offer, both price and volume must surpass ours. While theoretically possible, how feasible it is remains questionable. Securing shares to become the largest shareholder through a counter tender offer is very difficult.

Was there prior consultation with friendly forces such as LG, Hyundai Motor, and Hanwha before the tender offer?

(Kim Kwang-il, Vice Chairman of MBK Partners) None at all. I believe everyone was surprised. We consider these companies as Korea Zinc’s friendly groups. We regard them as very important strategic partners and plan to further develop relationships. However, we do not consider them as Chairman Choi Yoon-beom’s allies.

Was there prior consultation with the National Pension Service (NPS)?

(Kim Kwang-il, Vice Chairman of MBK Partners) No consultation. Since NPS manages public funds, and the largest and second-largest shareholders have differing opinions, we believe judging what is right or wrong would harm NPS’s neutrality and fairness. Therefore, we do not plan to request cooperation from NPS at this stage. However, after the tender offer concludes and an extraordinary general meeting is held, we will explain voting rights.

Among Korea Zinc’s core affiliates is Korea Precursors, a joint venture between subsidiary CAMCO and LG Chem. Currently, the Choi family controls the board and management. If the tender offer succeeds and governance changes, there are concerns this joint venture might dissolve.

(Kim Kwang-il, Vice Chairman of MBK Partners) No change. We want to strengthen our stake to scrutinize suspicions about Chairman Choi Yoon-beom personally. We only said that the joint management spirit of the Choi and Jang families was destroyed by Chairman Choi Yoon-beom. We still recognize the contributions of both families to the Yeongpung Group. There is no reason to shake well-performing companies just because the largest shareholder’s stake increased. There will be no change to other Korea Zinc members.

Have there been discussions about separating the families?

(Kang Sung-doo, President of Yeongpung) No. Perhaps if Honorary Chairman Choi Chang-geol were alive, he might have discussed it. However, third-generation Chairman Choi Yoon-beom only publicly stated he would be independent but never discussed how to be independent or how to handle the largest shareholder status and division. If such serious discussions and agreements had occurred, a graceful separation might have been possible.

The Korea Zinc labor union is protesting in front of the MBK headquarters, and the Ulsan mayor has clearly opposed the tender offer. This seems like direct opposition from Korea Zinc members. What is your stance?

(Kim Kwang-il, Vice Chairman of MBK Partners) We believe it is due to a lack of communication. We have explained our position directly and indirectly to the Ulsan mayor and requested a meeting. Once arranged, we will visit Ulsan to meet the mayor, Ulsan Chamber of Commerce, and Ulsan City Council to explain. We want to clearly explain Korea Zinc’s plans to contribute to Ulsan’s economy and continue job creation. The same applies to the labor union. Korea Zinc’s consolidated total wages last year were about 380 billion KRW. The company spent 560 billion KRW on the One Asia Fund. Fundamentally, we consider this a labor issue. As mentioned, there will be no restructuring, and we plan to work with the union under a job creation policy.