"Full Purchase in 1-Week Subscription"...Korea Zinc's 3.1 Trillion Won Tender Offer Gamble

Start of Open Tender Offer for Treasury Shares at 830,000 Won
MBK and Youngpoong's Increased Purchase Price Also Under Watch
Stock Price Exceeds 750,000 Won as of Morning of 4th
National Core Technology Evaluation Review Also Held on the Same Day

Korea Zinc, which has launched a 3 trillion won scale tender offer for its own shares to defend its management rights, has made a bold move by removing the minimum purchase quantity to eliminate the uncertainty that the tender offer subscription may fail due to insufficient number of shares applied for. In other words, it aims to increase the participation rate in the 830,000 won tender offer. As the time approaches for Youngpoong and MBK Partners to decide whether to raise the tender offer price, there is an assessment that the Korea Zinc management rights dispute will turn into a ‘chicken game.’

On the 4th, Korea Zinc announced that it will start a tender offer to purchase 3,726,591 treasury shares (18.8% stake) at 830,000 won per share together with global private equity fund (PEF) Bain Capital. Specifically, Korea Zinc will acquire 3,209,009 treasury shares (15.5% stake) by investing 2.6635 trillion won, and Bain Capital will acquire 517,582 shares, equivalent to a 2.5% stake, for about 400 billion won.

Choi Yoon-beom, Chairman of Korea Zinc, is speaking at the Korea Zinc press conference held on the afternoon of the 2nd at the Grand Hyatt Hotel in Yongsan-gu, Seoul.
[Photo by Yonhap News]

Korea Zinc initially set the minimum purchase quantity at 1,215,283 shares (5.87%), but removed this condition in the report submitted to the financial authorities. This means that they will purchase all shares even if only one share is subscribed, aiming to eliminate the uncertainty caused by under-subscription.

Attention is focused on the tender offer subscriptions being promoted by MBK Partners and Youngpoong. MBK’s tender offer will close this afternoon. MBK and Youngpoong must decide whether to change the tender offer conditions by the stock market closing time at 3:30 p.m. Like Korea Zinc, they may consider removing the minimum purchase condition or raising the purchase price above 830,000 won.

They plan to decide their response strategy based on market conditions. As of 9:20 a.m. on the 4th, Korea Zinc’s stock price was 758,000 won, exceeding the tender offer price (750,000 won) they proposed. If the stock price continues to rise, the possibility of failing the tender offer increases, so MBK is also expected to consider raising the purchase price.

Kang Sung-doo, president of Youngpoong, said in a text message exchanged with Asia Economy, "Whether the tender offer price will be raised is entirely MBK’s authority," but added, "I understand that additional funds have been deposited to MBK now, so their financial capacity is sufficient."

Both sides are sharply opposing each other over the legality of Korea Zinc’s treasury stock tender offer. Youngpoong filed another injunction to suspend the treasury stock purchase procedure with the Seoul Central District Court immediately after Korea Zinc’s board resolution. Although the court dismissed the injunction to prohibit Korea Zinc’s treasury stock purchase on the 2nd, Youngpoong appealed and took further action.

Kim Kwang-il, Vice Chairman of MBK Partners (center), is answering questions from the press at a press conference regarding MBK Partners' public tender offer for Korea Zinc held on the morning of the 19th of last month at Lotte Hotel in Jung-gu, Seoul. On the left is Kang Sung-doo, President of Young Poong, and on the right is Lee Sung-hoon, a lawyer at Baker McKenzie Korea.
[Photo by Yonhap News]

Youngpoong and MBK argue that Korea Zinc’s treasury stock purchase, promoted by the board resolution, may violate the Commercial Act by exceeding the scope of authority. They emphasize, "The voluntary reserve is not included in the dividend resources available by board resolution, so the possible scale of Korea Zinc’s treasury stock purchase is only 58.6 billion won."

Korea Zinc holds the position that it has more than 6 trillion won in distributable capital. According to the Commercial Act, the possible scale of treasury stock acquisition is calculated, and within that limit, cash on hand and borrowings can be lawfully used as acquisition resources. Park Ki-duk, CEO of Korea Zinc, said, "Even though we are conducting the tender offer, false information is unsettling shareholders," and added, "We have immediately reported to the Financial Supervisory Service and initiated criminal action for spreading false information."

The Ministry of Trade, Industry and Energy will hold a meeting of the Industrial Technology Protection Committee this afternoon to review whether Korea Zinc’s precursor manufacturing technology qualifies as a national core technology. There is a possibility that the final judgment result will be announced on the day of the review. Even if Korea Zinc’s technology is designated as a national core technology, it will not significantly affect MBK’s tender offer, but if MBK gains management rights, there may be restrictions on selling the technology or management rights to foreign countries such as China in the future. Companies holding national core technology require government approval for acquisition by foreign companies.