Korea Zinc Stock Price Falls from 735,000 Won to Early 700,000 Won Range
Chairman Choi Makes All-Out Effort to Secure Friendly Shares... Doubts Over White Knights' Exit Strategy
MBK Side Nervous at Korea Zinc Press Conference, Contemplates Price Card
The stock price of Korea Zinc fell from 735,000 won (closing price on the 20th) last week to 701,000 won (as of 9:30 a.m. on the 23rd), losing some momentum amid expectations for a counter tender offer. However, it is still 6.2% higher than the tender offer price of 660,000 won. While Chairman Choi Yoon-beom of Korea Zinc is actively securing allies and preparing for the counter tender offer, MBK and Youngpoong are considering whether to raise the price. However, as the management rights dispute intensifies, the exit strategies of the white knights who entered at the higher price are becoming unclear, and participants are expected to face increased legal risks due to various controversies such as breach of trust allegations. If a full-scale 'war of money' breaks out through the counter tender offer, it is predicted that even the ultimate winner will not be able to avoid the 'winner's curse.'
Two Scenarios for Korea Zinc Counter Tender Offer... White Knights with No Justification or Exit
According to the financial investment industry on the 23rd, there are about two scenarios for Korea Investment & Securities (KIS) counter tender offer discussed in the capital market. Both are based on the expectation that KIS, led by Kim Nam-gu, chairman of Korea Financial Group, will launch a counter tender offer for Korea Zinc due to its close relationship with Chairman Choi Yoon-beom of Korea Zinc. The first scenario is that the final investors, such as Japan's SoftBank, the U.S. private equity fund Bain Capital, or raw material suppliers or partners from Japan, Europe, or Australia, agree to purchase Korea Zinc shares at a counter tender offer price higher than the market price, while KIS supports them by providing a bridge loan for one year to buy time.
This is the least burdensome scenario for KIS. However, the problem with SoftBank or Bain Capital is the lack of an exit strategy. If they acquire shares at an elevated price through the tender offer, it becomes impossible to sell them in the stock market as the stock price reverts. Chairman Choi's side, holding 1.8% of Korea Zinc shares, does not have the financial capacity to compensate SoftBank or Bain Capital for losses after the stock price falls. Therefore, they will inevitably seek to recover their investment by selling management rights, including the Choi family's shares. Hyundai Motor, Hanwha, and LG have not reported a 5% joint sale agreement, making joint sales impossible. Also, since they have business cooperation with Korea Zinc, there is no reason to sell. Ultimately, compared to the current largest shareholders 'MBK·Youngpoong,' the 'SoftBank·Choi family' have a lower shareholding ratio, making investment recovery through management rights sales practically impossible, resulting in no viable exit strategy.
It is possible for suppliers or partners of Korea Zinc, such as Trafigura, Glencore, or Japan's Sumitomo, who already hold some shares, to purchase shares at a high price. They have less need for investment recovery. However, such transactions are likely to cause problems as they may be considered breach of trust transactions that sacrifice Korea Zinc's long-term interests to defend Chairman Choi's personal management rights. Since suppliers or partners acquire shares at a high price, they may seek benefits from Korea Zinc through high margins (prices) in transactions or form exclusive trading relationships under the guise of alliances to secure additional profits.
The second scenario is that, failing to find a final investor, temporary (bridge) short-term funds are raised for up to about one year to conduct the counter tender offer. KIS provides bridge loans, and foreign private debt funds provide only bridge equity. This means providing short-term financing while bearing risks without knowing when the funds will be repaid, with no final investor confirmed. This is a burdensome investment for both securities firms and foreign private debt funds. In particular, KIS may face violations of Article 35 of the Capital Markets Act, as it would bear risks beyond the limits allowed by various loan-related regulations under the Capital Markets Act, being already classified as a friendly shareholder of Chairman Choi. It is possible to consider receiving loss compensation (or subordinated investment) from Chairman Choi's side, but even then, it is difficult to secure sufficient amounts to meet the loan-to-value (LTV) ratio, and providing large-scale loans or funds in a short period without repayment guarantees is still exceptional.
Will MBK Raise Tender Offer Price? Concerns Over 'Winner's Curse'
Although the stock price has softened somewhat, Korea Zinc has announced a press conference on the 24th and is preparing for a counter tender offer, so MBK cannot be complacent. Chairman Choi's side needs to throw a check during MBK's tender offer period, which complicates the calculations of MBK and Youngpoong regarding whether to raise the tender offer price.
However, if the price competition with Chairman Choi's side intensifies, both sides are expected to suffer significant losses. The funds required by MBK for this tender offer are estimated to be up to 2.1332 trillion won. Chairman Choi's side is expected to invest around 1 trillion won in the tender offer. Since the current Korea Zinc stock price is higher than MBK's proposed tender offer price, there remains a possibility of raising the purchase price. The deadline to raise the tender offer price without extending the period is the 26th. If MBK makes a public announcement after the market closes on the 26th, Chairman Choi's side will have only four trading days left to respond effectively. MBK is reportedly planning to devote all efforts this week to persuading domestic and foreign institutional investors.
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