[Insight & Opinion] How Should We View the Korea Zinc M&A?

Success of Public Tender Offer Lies with Shareholders
Shareholder Trust Is the Key Defense for Management Control

The securities market is heating up due to the public tender offer for Korea Zinc shares by Youngpoong Group and private equity fund MBK Partners.

Youngpoong and MBK are attempting to acquire more than 50% of Korea Zinc's shares to gain management control. Initially, they announced a public tender offer at 660,000 KRW per share, but as the stock price rose, they increased the offer price to 750,000 KRW. Korea Zinc claims this is a 'predatory corporate raid' and argues that foreign capital is trying to hand over a key industry to China.

On the other hand, MBK states that the public tender offer is being conducted to improve corporate governance and denies the claim that it is a hostile takeover. Regardless of the reason, the general perception of management disputes in our society is negative. In Korea, mergers and acquisitions still carry a strong negative image of 'corporate plundering.'

However, mergers and acquisitions play a positive role in the process of discovering new businesses and fostering growth. Whether hostile or friendly, the strategy of acquiring management control through a public tender offer is a common investment method in advanced capital markets and is an excellent means of growth for many companies. Although it does not always yield good results, there is little reason to view the process itself negatively.

In fact, from the perspective of ordinary shareholders, if a company that could achieve better performance is failing due to an incompetent controlling shareholder, changing the controlling shareholder can be a solution. The important thing is not the major shareholder but the company, and if there is a criterion for deciding who should hold management control, it should be who can increase the company's value more.

Among the reasons Youngpoong and MBK have cited for the public tender offer is the issue of breach of trust involving Chairman Choi Yun-beom, the third generation of the Choi family, the second-largest shareholder managing Korea Zinc. Chairman Choi reportedly invested 560 billion KRW in a private equity fund run by a middle school classmate without board approval and invested 580 billion KRW in a U.S. company that is in a state of complete capital erosion, causing losses to the company. There are many criticisms regarding governance, such as the board not functioning properly despite suspicions of Chairman Choi's pursuit of private interests. These criticisms have merit.

However, as MBK explains, it cannot be said that this is not a hostile takeover. A public tender offer conducted without consultation with the target company is, in principle, a hostile takeover. Regardless of the publicly stated justification, the goal of private equity or activist funds is profit, not the realization of social justice. MBK's offer of a tender price higher than the market price is likely based on calculations that profit is possible.

Nevertheless, the positive function of private equity funds like MBK is to buy problematic companies, inject capital, and improve management to increase value, then sell them to keep the industrial ecosystem running smoothly. It is inappropriate to liken legally recognized activities to predation or betrayal of the nation. For any company, a public tender offer can be an opportunity for shareholders of undervalued companies in the market to have their rights reassessed.

Currently, there are over 1,000 private equity funds in Korea, with investment amounts exceeding 130 trillion KRW. Of course, appropriate supervision and regulation are necessary. In particular, M&A regulations related to national security companies need to be strict, and legal measures to prevent the overseas leakage of core technologies should be supplemented. However, fundamentally, management control must be recognized by shareholders. Ultimately, the success or failure of a public tender offer is determined by the shareholders' choice. The management rights of a corporation are limited rights that must be approved by shareholders in the market, not inherited. There is no better way to defend management rights than gaining shareholders' trust through performance and results.

Sangcheol Kim, Economic Commentator