Three Remaining Variables in the Goryeo Zinc Management Dispute

2nd Injunction Result Marks Turning Point in Management Dispute
Will National Pension Service Holding 7.83% Exercise Voting Rights?
Choices of White Knights Hyundai, LG, Hanwha, and Others

The dispute between Korea Zinc and the Yeongpung-MBK Partners alliance attempting to acquire management rights, and the current Korea Zinc management led by Chairman Choi Yoon-beom trying to block it, reached another turning point on the 21st. The second injunction application filed by the Yeongpung-MBK alliance to prevent Korea Zinc’s treasury stock purchase was dismissed. As attention from the business community and capital markets focuses on the injunction result, the National Pension Service’s exercise of voting rights and the voting intentions of Korea Zinc’s white knights are identified as variables that could influence the outcome of the management rights dispute.

Injunction Result to Halt Korea Zinc Treasury Stock Tender Offer 'Dismissed'

After Korea Zinc announced a tender offer for treasury stock worth 3.6 trillion won, Yeongpung filed an injunction application with the court on the 4th to block it. Previously, the court had dismissed Yeongpung’s request to prohibit the acquisition of treasury stock against Chairman Choi’s side. With Yeongpung’s claims dismissed again in this second injunction lawsuit, Chairman Choi can proceed with the treasury stock tender offer to the end. A key issue in this second injunction lawsuit was whether Korea Zinc’s treasury stock tender offer was for the benefit of the entire company or for the current management, including Chairman Choi. The court’s ruling attracted significant attention from the capital market as it gauged the legality of corporate management rights defense measures. In particular, this injunction result was regarded as a turning point in the management rights dispute. Yeongpung and Chairman Choi’s side sharply clashed over whether ▲the tender offer at 890,000 won per share harms the company ▲the directors who made this decision violated their duty of care ▲whether discretionary reserves can be included within distributable profits by board resolution and used as funds for treasury stock acquisition ▲and whether the tender offer, which the largest shareholder Yeongpung cannot participate in, violates the principle of shareholder equality. After hearing both sides, the court quickly reviewed the records to avoid market confusion and issued a final dismissal decision.

Korea Zinc Management Rights Dispute: Will the 'Casting Vote' National Pension Service Exercise Its Voting Rights?

As the Korea Zinc management rights dispute drags on, the exercise of voting rights by the National Pension Service (NPS), which holds a 7.83% stake, is expected to be the casting vote. Once the date for the extraordinary shareholders’ meeting is set following the tender offer, the NPS is expected to hold a Stewardship Responsibility Committee meeting to discuss the direction of its voting rights exercise. The NPS’s voting intention is currently unknown. However, Kim Tae-hyun, the NPS CEO, is under political pressure after facing various questions and criticisms at the National Assembly audit regarding MBK, the entrusted asset manager, and its attempt to acquire Korea Zinc’s management rights. On the 18th, strong pressure was exerted at the audit session that private equity funds attempting mergers and acquisitions (M&A) of key national industries should not be selected as entrusted asset managers. On that day, Park Hee-seung, a member of the Democratic Party, asked Kim Tae-hyun, “Do you think it is appropriate for MBK, selected as the NPS’s entrusted asset manager, to attempt to intervene in the Korea Zinc management rights dispute where NPS is a major investor?” and “Isn’t the NPS effectively funding the management rights dispute?” Kim responded, “To be honest, I think it is undesirable for NPS funds to be used not for friendly M&A aimed at improving corporate and financial structures but for hostile M&A to seize management rights.”

Democratic Party lawmaker Baek Hye-ryun asked Kim Tae-hyun, “If money went to MBK, can MBK use that money without any sanctions?” Kim replied, “We do not want the money we provide to be used in a way that damages the reputation of the National Pension Service.” Facing continuous critical questions from lawmakers, the NPS also feels the burden. If Korea Zinc cancels the treasury stock acquired through the tender offer, the total number of shares will decrease, raising both sides’ stakes to the 40% range. With no clear winner, the voting intention of the NPS, which holds 7.83%, is identified as the biggest variable.

Voting Intentions of Korea Zinc’s White Knights Also a Key Variable

The shares classified as friendly to Chairman Choi total 18.55%. Hyundai Motor Group holds 5.05% through HMG Global LLC. They secured the stake through a third-party allotment rights offering last September and are known to have invested to strengthen cooperation in Chairman Choi’s vision of the ‘Troika Drive,’ which includes renewable energy, hydrogen, secondary battery materials, and resource circulation businesses. LG Chem (1.9%), believed to hold shares for cooperation in the secondary battery business, and Morgan Stanley (0.5%), holding shares for profit purposes, also have unclear voting intentions with similar types of stakes.

Hanwha Group, holding about 7.8% of Korea Zinc shares through Hanwha H2 Energy USA (4.8%), Hanwha Impact (1.8%), and Hanwha (1.2%), and relatively solid cooperative relationships with Chairman Choi’s side, as well as global raw material trading company Trafigura Group (1.5%), Korea Investment & Securities (0.8%), Hankook Tire & Technology (0.8%), and Chosun Refractories (0.2%), are also considered important in the voting dynamics.