MBK Declares "No Price Increase," but...
Korea Zinc Likely to Raise Tender Offer Once
High Possibility of Dismissal of Prohibition on Treasury Stock Purchase Injunction
Potential Breach of Contract Between Youngpoong and MBK
MBK Also States Tender Offer Faces Significant Uncertainty
Cho Yoon-beom, chairman of Korea Zinc, who is engaged in a management rights dispute with MBK Partners and Youngpoong, is approaching a moment of decision. After MBK declared that "there will be no increase in the tender offer price," the ball has effectively been passed to Chairman Cho.
According to industry sources on the 10th, Chairman Cho's side must decide by the 11th whether to raise the tender offer price for Youngpoong Precision and Korea Zinc. Since MBK's tender offer ends on the 14th, a decision must be made before then to incentivize investors not to respond to the rival's tender offer. In particular, Youngpoong Precision's Jericho Partners has convened a board meeting to discuss tender offer strategies, so there is a possibility that an increase in the tender offer price will be announced within this week.
Market consensus is that Chairman Cho will raise the price for Korea Zinc's share buyback. Although MBK pressured Chairman Cho's side against raising the price by stating that "price competition above the current tender offer price would lower corporate value" after freezing the tender offer price, the court has ruled that the appropriate stock price of Korea Zinc cannot be accurately determined.
Choi Yoon-beom, Chairman of Korea Zinc, is attending 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]
At the time of the injunction prohibiting share buybacks filed by Youngpoong against Korea Zinc on the 13th of last month, the court rejected Youngpoong's claim that "acquiring Korea Zinc's treasury shares at a high price formed during the tender offer period violates directors' fiduciary duties and duty of care," stating, "Considering that the creditor (Youngpoong) itself initially proposed a tender offer price of 660,000 KRW and then raised it to 750,000 KRW, it is difficult to clearly calculate the appropriate stock price of Korea Zinc at this stage."
MBK has again filed an injunction claiming that Korea Zinc's share buyback constitutes breach of trust, but the possibility of dismissal cannot be ruled out. Under current law, the only defense allowed to companies against hostile takeovers is the acquisition of treasury shares. There is no restriction against acquiring treasury shares during the tender offer period. Cho Hyun-duk, legal representative of Korea Zinc from Kim & Chang law firm, said, "The opposing claim that using company funds for management rights defense is illegal was already dismissed at the previous injunction stage."
The suspicion of breach of trust in the management cooperation agreement between Youngpoong and MBK also supports the view that Korea Zinc will continue its tender offer until the end. Youngpoong Precision filed a complaint with the Seoul Central District Prosecutors' Office last month against Youngpoong's advisor Jang Hyung-jin, three outside directors, and MBK Partners on charges of breach of trust. Recently, they also submitted an injunction request to the Seoul Central District Court to prohibit the execution of the management cooperation agreement and the monetary loan agreement until the final ruling on the main case.
They argue that the management cooperation agreement with MBK provides unilateral economic benefits favorable to MBK. In particular, they pointed out the problematic structure in which MBK secures disposal rights and voting rights over Youngpoong's Korea Zinc shares. They also criticized the decision by three outside directors, who are not engaged in the company's regular operations, to borrow an amount equivalent to 7% of Youngpoong's equity capital and lend it to a third party as a serious act of breach of trust.
However, the recent decline in Korea Zinc and Youngpoong Precision's stock prices is expected to be a variable complicating Chairman Cho's strategy to raise the tender offer price. As of 9:05 a.m. on the day, Korea Zinc's stock price was trading at 761,000 KRW, down 1.93% from the previous trading day, and Youngpoong Precision was trading at 30,100 KRW, down 10.95%. If the stock price weakness continues, Chairman Cho's side's strategy to increase the tender offer price is expected to become more complicated.
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