[Column] The 'Winner's Curse' of Korea Zinc Belongs to the Company

It has been exactly one month since Youngpoong launched a public tender offer in collaboration with MBK Partners to acquire Korea Zinc. As of the deadline on the 14th, the conflict between the two sides over management rights has not been resolved but has only intensified. Reports that Youngpoong advisor Jang Hyung-jin, Korea Zinc chairman Choi Yoon-beom, and MBK vice president Kim Kwang-il recently met were all denied by the three companies as 'unfounded.' This is interpreted as a reaffirmation of their stance to 'go all the way' until next year’s shareholders' meeting. Although the market warns of the 'winner's curse,' it seems more likely that the curse will fall not on the winner but on Korea Zinc as a corporation.

From the early stages of the dispute, both sides engaged in fierce exchanges. On the 19th of last month, MBK Partners criticized Chairman Choi’s management capabilities during a press conference. However, they offered no answers on how they would lead Korea Zinc after gaining control. Subsequently, Korea Zinc and Youngpoong executives also held press conferences, but these were limited to mutual accusations without presenting new facts. Ultimately, it was difficult to confirm the company’s future vision through the management rights dispute.

The problem is that regardless of which side gains control, Korea Zinc is bound to suffer significant losses if things continue as they are. Chairman Choi’s side is conducting a treasury stock buyback under the pretext of enhancing shareholder value by injecting trillions of won. Of the 3.2 trillion won allocated for the buyback, about 2.7 trillion won will be financed through debt. Although Korea Zinc has excellent cash-generating ability, borrowing such a huge amount to defend the stock price will inevitably shrink future investments.

If MBK gains management rights, even greater risks exist. Due to the nature of private equity funds (PEF), which must recover investments within a few years, there is a possibility that the company’s core assets could be sold to foreign capital. MBK has asserted that there will be no sale to China, but it is difficult to trust such a promise without legal effect. Doubts about management competence continue to be raised. The management know-how of the Choi family, which elevated Korea Zinc to the world’s number one non-ferrous metals company, cannot be ignored.

Even after the public tender offer ends, the management dispute is likely to continue. Ahead of the shareholders' meeting scheduled for March next year, both sides will attempt to seize control of the board through an extraordinary shareholders' meeting. Anxiety among members is also increasing. Uncertainty is growing as it remains unclear who will ultimately hold management rights.

The repercussions of the management dispute are already emerging. Clients negotiating with Korea Zinc have postponed schedules or halted discussions. There are also reports that a nickel supply contract with a global automaker is on the verge of collapse. Although the conflict over management rights began with the justification of the company’s development, that justification is fading. We can only hope that a company possessing the world’s best non-ferrous metal smelting technology will not be shaken by struggles over money and power.