Chairman Choi Takes Legal Risks with Tender Offer for Treasury Shares
Is MBK Unveiling Its Final Card After Long Simulation?
The management rights dispute over Korea Zinc between Chairman Choi Yoon-beom, who has taken a 'do-or-die' stance with a tender offer for treasury shares, and the private equity fund MBK Partners?Yeongpung alliance, which is preparing a counterattack after meticulous calculations, is heading toward its climax on the 4th. The management rights dispute, which began with a 'surprise attack' by MBK and Yeongpung on the 13th of last month, reversed on the 2nd of this month when Chairman Choi made a bold move with a high counter-tender price of 830,000 won. As MBK aims to counterattack again by raising the price of Yeongpung Precision first, market attention is focused on whether they will also raise the tender offer price for Korea Zinc. The official closing date for MBK’s tender offer is the 6th, so it is not too late to change conditions or prices after the market closes on the 4th, based on the stock price and tender subscription status.
Meticulously Prepared MBK Raises Yeongpung Precision Price to 30,000 Won... Will They Also Raise Korea Zinc Tender Price?
According to the Korea Exchange on the 4th, the stock price of Korea Zinc was 758,000 won as of 9:30 AM, surpassing the tender offer price of 750,000 won proposed by the MBK?Yeongpung alliance. This represents a 6.3% increase compared to the previous trading day.
The success or failure of MBK alliance’s tender offer, which ends today, depends on Korea Zinc’s stock price. If the stock price is higher than the 750,000 won offered by the MBK alliance, investors may lose the incentive to participate in the tender offer, potentially failing to meet the minimum quantity. To prepare for this, the MBK alliance is considering raising the tender offer price for Korea Zinc again. They plan to decide based on market conditions today.
If the price is not significantly higher than 750,000 won, institutional investors may still prefer the more stable tender offer from the MBK alliance over the treasury share tender offer. Since MBK and Yeongpung have been meticulously preparing the tender offer for a long time, it is presumed they have conducted numerous simulations assuming a counter tender offer from Chairman Choi. Accordingly, market attention is focused on whether MBK alliance will make another strategic move.
MBK and Yeongpung first adjusted the price of Yeongpung Precision. From the 4th, the tender offer price for Yeongpung Precision was raised by 20% from the previous 25,000 won to 30,000 won, matching the price proposed by Chairman Choi. The MBK?Yeongpung alliance amended the tender offer announcement accordingly. Consequently, the tender offer period for Yeongpung Precision, originally scheduled to end on the 6th, has been extended to the 14th. When MBK started the tender offer for Yeongpung Precision on the 13th of last month, the initial price was 20,000 won, which was raised once to 25,000 won on the 26th. After Chairman Choi launched a counter tender offer at 30,000 won per share on the 2nd, MBK raised the price again.
The 30,000 won price stems from MBK’s strategy to minimize wasted resources. MBK plans to purchase all remaining shares (43.43%) excluding the stakes held by the Jang family, including Jang Hyung-jin, an advisor to Yeongpung, and the Choi family including Chairman Choi. However, Chairman Choi’s side will tender only 25%. If the number of shares tendered exceeds the planned purchase quantity, Chairman Choi’s side will proportionally allocate purchases only up to the target amount. When prices are the same, it is advantageous to accept the side offering to buy more shares.
Chairman Choi Yoon-beom of Korea Zinc Takes a 'Do-or-Die' Stance, Accepting Risks to Defend Management Rights
Chairman Choi’s side has pulled out all possible cards, accepting legal and financial risks. The Korea Zinc management initially considered a treasury share tender offer strategy unrealistic in the capital market but has now adopted it. From the 4th to the 23rd, they will purchase up to 15.5% of treasury shares, and their friendly force Bain Capital will secure up to 2.5% through a counter tender offer. The strategy is to secure up to 18% by investing a total of 3.1 trillion won. Korea Zinc’s decision to offer a price of 830,000 won per share, higher than market expectations, aims to block MBK’s counterattack as much as possible. They decided to purchase all tendered shares without a minimum quantity limit. Despite the counter tender offer announcement on the 2nd, Korea Zinc’s stock price remained below the 750,000 won price proposed by the MBK alliance, prompting a method more favorable to sellers.
Korea Zinc announced plans to cancel all treasury shares acquired through the tender offer. MBK and Yeongpung immediately took legal action against Korea Zinc’s announcement. They filed an injunction with the court to halt Korea Zinc’s treasury share purchase process and sued the Korea Zinc board members who approved the decision for breach of trust. MBK argued, "Korea Zinc’s usual stock price is about 500,000 won, and buying treasury shares at a higher price reduces the company’s capital and damages future competitiveness, constituting breach of trust." They also claimed, "This announcement during the tender offer period manipulates the market to discourage investors from responding to MBK’s tender offer." Furthermore, MBK stated, "A shareholders’ meeting must precede a treasury share acquisition of 2.7 trillion won, but Korea Zinc is forcing a large-scale tender offer for treasury shares solely by board resolution, violating commercial law." Meanwhile, Chairman Choi said at a press conference, "Although treasury share purchases are a difficult decision with short-term financial burdens, it is a solution to preserve corporate value in the mid to long term."
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