After Round 1, Korea Zinc-Youngpoong·MBK... "Now It's Time for the Court"

Korea Zinc, Injunction Prohibiting Treasury Stock Acquisition
Youngpoong·MBK, Injunction Prohibiting Execution of Management Cooperation Agreement
Outcome of Lawsuit May Reverse Decision

The public tender offer results by MBK Partners and Youngpoong have been disclosed, ushering the Koryo Zinc management dispute into a new phase. Since both sides have filed lawsuits that could have critical consequences, it is difficult to predict the outcome prematurely.

The Youngpoong-MBK alliance was able to secure an additional 5.34% stake in Koryo Zinc through the tender offer that ended on the 14th. Although they offered a price (830,000 KRW) lower than Koryo Zinc's (890,000 KRW), the outcome is seen as a partial success, though opinions differ on whether they achieved the minimum volume they initially aimed for. What is certain is that failing to secure a majority of voting rights has left the spark of the Koryo Zinc management conflict alive.

The remaining variable depends on the results of the lawsuits each side has pursued. Future positions and responses are expected to vary depending on the outcomes of the provisional injunction lawsuits filed against each other.

First, the result of the second provisional injunction lawsuit prohibiting Koryo Zinc from acquiring treasury stock is expected as early as the 21st. After the Seoul Central District Court dismissed the first injunction earlier this month, MBK promptly filed the second injunction lawsuit. Since the same court that dismissed the first injunction will make the decision again, the second injunction is also likely to be dismissed.

However, MBK expects a different outcome because various conditions have changed. Koryo Zinc held a board meeting at that time and raised the purchase price from 750,000 KRW to 830,000 KRW, arguing that this was a price manipulation intended to obstruct MBK's tender offer.

If the court accepts this argument and grants the injunction, Koryo Zinc's ongoing treasury stock repurchase, which is scheduled until the 23rd, could be completely halted. From Koryo Zinc's perspective, since the treasury stock repurchase was originally for cancellation purposes without voting rights, it does not affect the shareholding structure. However, it is expected to pose a risk factor that could influence future allegations of breach of fiduciary duty.

[Image source=Yonhap News]

Koryo Zinc has also filed a provisional injunction lawsuit through Youngpoong Precision to prohibit MBK from fulfilling the management cooperation agreement. Last month, Youngpoong Precision submitted a complaint to the Seoul Central District Prosecutors' Office accusing Youngpoong advisor Jang Hyung-jin, three outside directors, MBK Partners, and Vice Chairman Kim Kwang-il of breach of fiduciary duty, and is now requesting that the court prohibit the fulfillment of their management cooperation and loan agreements until the main judgment is finalized.

They argue that the management cooperation agreement, including voting rights and call options, is unilaterally favorable to MBK and constitutes a breach of fiduciary duty causing damage to Youngpoong and its shareholders. In particular, they point out that Youngpoong illegally disposed of more than half of its stake in Koryo Zinc, which accounts for a significant portion of its assets, without following proper procedures such as special resolutions at the shareholders' meeting.

The schedule for the provisional injunction lawsuit to prohibit the fulfillment of the management cooperation agreement has not yet been specifically set, but a hearing is expected to take place within this month. If the injunction is granted, MBK's tender offer itself could be nullified, leading to an unpredictable situation.

If both lawsuits are dismissed, a vote battle at the Koryo Zinc board meeting scheduled for next month will be inevitable. Chairman Choi Yoon-beom, who is significantly short of shares, is expected to actively respond by securing additional allies using Koryo Zinc treasury stock or by purchasing shares on the market before the board meeting following the treasury stock tender offer.