[Exclusive] Korea Zinc Starts Counterbuy, All Treasury Shares to Be 'Cancelled' Upon Repurchase

Korea Zinc has confirmed that it announced a policy to burn all treasury shares during the injunction trial prohibiting the acquisition of treasury shares.

According to legal and business circles on the 1st, Korea Zinc stated in the trial over the 'injunction prohibiting the acquisition of treasury shares' filed by Youngpoong and MBK against Chairman Choi Yoon-beom's side that if the injunction is dismissed and the acquisition of treasury shares becomes possible, it will burn all the treasury shares acquired thereafter.

MBK has filed an injunction with the court requesting that Korea Zinc be prohibited from acquiring treasury shares during the tender offer period (September 13 to October 4) to secure management rights of Korea Zinc.

Treasury shares do not have voting rights, which relatively increases the control of the existing largest shareholder, and it also enables securing friendly shares through stock exchanges with friendly companies.

MBK argues that under Article 140 of the Capital Market Act, Korea Zinc is a 'special related party' as it is an affiliate of Youngpoong, and therefore Korea Zinc cannot acquire treasury shares during the tender offer period.

On the other hand, Korea Zinc counters that "Youngpoong and MBK attempted a hostile merger and acquisition (M&A) and disclosed that Korea Zinc is not a special related party of Youngpoong," asserting that the acquisition of treasury shares is legal.

The court is known to have received additional materials from both the MBK-Youngpoong alliance and Korea Zinc and plans to make a decision as soon as possible.

Korea Zinc's announcement of the 'policy to burn all treasury shares' through this trial is interpreted as an attempt to win the court's favor by stating that it is not for securing voting shares through stock exchanges with friendly companies but rather to enhance shareholder value in the long term through burning.

However, while Korea Zinc plans to burn all treasury shares it will acquire in the future, it also intends to use some of the treasury shares it previously held (2.4%) for purposes other than burning, such as employee performance rewards.

If the injunction filed by Youngpoong and MBK is dismissed, Korea Zinc will be able to employ a two-track strategy of 'treasury share acquisition' and 'counter tender offer.'

If the court rules in favor of Korea Zinc, it will be able to increase its shares for management rights defense not only through cooperation with external private equity funds but also using corporate funds.

Some in the business community view Korea Zinc's recent issuance of corporate bonds (CP) to raise 400 billion won and preparation of ammunition such as securities company loans as a prelude to treasury share acquisition.

However, if the court accepts the injunction filed by Youngpoong and MBK, treasury share acquisition, one of Korea Zinc's management rights defense measures, will become impossible.

In this case, Chairman Choi's side must defend management rights solely with the counter tender offer card. The additional shares that Chairman Choi's side needs to secure for management rights defense are estimated to be at least 6%.

Since MBK raised the tender offer price per share from 660,000 won to 750,000 won, if Chairman Choi launches a counter tender offer at 800,000 won per share to secure a 6% stake, the required funds are estimated to exceed 1.3 trillion won.

Korea Zinc's efforts to mobilize the Choi family's global network to secure friendly forces are also interpreted as moves considering the counter tender offer.

Earlier, Chairman Choi visited Tokyo, Japan, around the recent Chuseok holiday and met with senior officials of BHP Japan, the world's largest mining company, and reportedly also contacted Japan's SoftBank, a global investment company.

Choi Nae-hyun, chairman of Kemco, a Korea Zinc affiliate, and Choi Joo-won, CEO of Arc Energy, Korea Zinc's Australian affiliate, are also working to secure global friendly forces.

Chairman Choi's side is known to be negotiating with U.S. private equity funds such as Bain Capital and Kohlberg Kravis Roberts (KKR) to raise around 1 trillion won.

Investment banking (IB) industry insiders believe that if Korea Zinc wants to start a counter tender offer before the tender offer end date of MBK and Youngpoong on the 4th of next month, it must complete fund deposits and submit the tender offer report by the 2nd at the latest.