Korea Zinc "Share Buyback, a Legitimate Defense Measure Against Hostile M&A"

"'No Problem with Treasury Stock Acquisition' Court Ruling Welcomed"
"Board Meeting Held to Approve Treasury Stock Acquisition and Cancellation"
"Not Considered Breach of Fiduciary Duty or Market Manipulation"

Korea Zinc stated that the court's dismissal of Young Poong's injunction request to prohibit the acquisition of treasury shares is a ruling that recognizes "the acquisition of treasury shares as a lawful management defense measure that does not constitute breach of fiduciary duty or market manipulation."

On the 2nd, Korea Zinc said, "We welcome the court's decision and thank the judges for their wise judgment," adding, "This ruling clearly confirms that the series of actions taken by Korea Zinc's management and board of directors to acquire treasury shares in a hostile merger and acquisition (M&A) situation are lawful acts permitted by law."

It continued, "We will proceed with a resolution on the acquisition and cancellation of treasury shares through a public tender offer at today's board meeting."

The Civil Division 50 of the Seoul Central District Court (Presiding Judge Kim Sang-hoon) dismissed Young Poong's injunction lawsuit filed against Korea Zinc to prohibit the acquisition of treasury shares on the morning of the same day. Previously, Young Poong had filed an injunction request with the court to prevent Korea Zinc from acquiring treasury shares during the public tender offer period, but the court did not accept it.

This court decision clearly stated that even if Korea Zinc is formally an affiliate of Young Poong, the creditor of this injunction, it does not fall under the category of a "special related party" regarding public tender offer regulations.

The court judged that there was no explicit agreement between the creditor and Korea Zinc regarding jointly acquiring or disposing of stocks, mutually transferring or receiving acquired stocks, or jointly exercising voting rights.

Furthermore, considering that explicit opposition was expressed at the regular shareholders' meeting in March, that Young Poong filed a lawsuit to invalidate Korea Zinc's new share issuance, that Young Poong explicitly opposed this public tender offer, and finally that Young Poong filed an injunction to prohibit Korea Zinc's acquisition of treasury shares and is engaged in mutual legal disputes, the court concluded that they are not in a joint ownership relationship, a detailed requirement for special related parties.

"Acquisition of Treasury Shares Does Not Constitute Breach of Fiduciary Duty or Market Manipulation"

Through this ruling, Korea Zinc argued that even if the acquisition price of treasury shares is set higher than the market price, it cannot constitute breach of fiduciary duty because it is an act that returns profits to the company's shareholders.

Young Poong claimed that since Korea Zinc's stock price is high, acquiring treasury shares at a high price violates the directors' duty of loyalty and duty of care. However, the court ruled that considering Young Poong itself raised the purchase price to 750,000 won, it is difficult to clearly determine the appropriate stock price of Korea Zinc at this stage, so the creditor's claim is hard to accept.

Korea Zinc explained, "Unlike third-party allotment of new shares or disposal of treasury shares to friendly shareholders, the acquisition of treasury shares does not harm other shareholders' interests. Essentially, it returns the company's assets to shareholders, similar to dividends, does not cause unfair wealth transfer issues among shareholders, and results in an increase in shareholder value. Our claims on this matter were partially acknowledged as valid."

Also, Young Poong argued that the acquisition might fall under market manipulation prohibited by Article 176 of the Capital Markets Act, but the court judged that it cannot be concluded that the actions of Korea Zinc's directors constitute market manipulation prohibited by the Capital Markets Act.

"Acquisition of Treasury Shares Is a Lawful Defense Against Hostile M&A"

Korea Zinc actively argued to the court that if a hostile M&A using a public tender offer method risks damaging corporate value, the target company and management can and should take necessary substantial measures to defend against it.

Overseas, if the board determines that such acts harm the company and shareholders during hostile takeover attempts, extreme defense measures like poison pills are possible. However, Korea Zinc's position is that in Korea, acquiring treasury shares is almost the only means of defending management rights.

Korea Zinc stated, "The ruling dismissing the injunction also partially acknowledges the rationality of our claim that the public tender offer for treasury shares is not for the private benefit of the Cheong family but a legitimate measure to protect the company and all shareholders from hostile predatory M&A."