Imminent End of Korea Zinc Tender Offer Round 2... The True Faces of 'K-Conglomerate Generational Change' and 'Rapidly Growing Capital Market'

The Day of Ending the Public Tender Offer After One Month and Ten Days on the 23rd
Korea Zinc Aims to Secure Up to 20% Stake
Future Shareholders' Meeting Expected to Lead to Voting Rights Battle

The management dispute at Korea Zinc will come to a close on the 23rd, a month and ten days after it began, with Korea Zinc's tender offer ending. In the first round of the dispute, Youngpoong and MBK Partners secured a 5.34% stake in Korea Zinc, gaining a favorable position. Korea Zinc plans to secure up to about 20% of the shares through this second-round tender offer, closely approaching a majority of voting rights. Regardless of the outcome, the Korea Zinc management dispute is seen as reflecting the transitional growing pains of Korea's industrial sector, which is centered around conglomerates. Some view it as exposing the flawed reality of K-listed companies, resulting from the generational shift in corporate groups combined with the imbalances in Korea's rapidly growing capital market.

Month and Ten Days 'Tender Offer' Marathon Ends... Korea Zinc Aims to Secure Up to 20% Stake

According to the financial investment industry, the tender offer subscription by Korea Zinc and Bain Capital will be conducted until 3:30 PM on the 23rd through offline branches or online platforms of the lead underwriters Mirae Asset Securities and KB Securities. Korea Zinc aims to secure up to 17.5% of shares through its own tender offer, while its ally Bain Capital targets 2.5%. After the competing tender offers conclude, all treasury shares purchased by Korea Zinc will be canceled.

Assuming Korea Zinc's treasury share tender offer meets its target volume, after the cancellation of treasury shares, the voting rights stake of the Youngpoong-MBK alliance and Korea Zinc side is estimated to be 48.03% and 45.6%, respectively. It is expected that both sides will fiercely compete for any remaining shares after the tender offer to secure additional minor stakes. The Youngpoong-MBK alliance plans to convene an extraordinary general meeting of shareholders after Korea Zinc's tender offer ends to reorganize the board of directors. Subscription rates for the treasury share tender offer and shareholder meeting attendance rates are expected to be variables. The management dispute phase is likely to prolong into next year.

"Even if you win, it's not really a win"... Revealing the Generational Shift of Korean Conglomerates and the Flawed Reality of the Rapidly Growing Capital Market

The management dispute at Korea Zinc, ongoing for over a month, has delivered a bigger shock to Korea's business community and capital market than expected. A representative of a major domestic private equity fund (PEF) said, "No matter who wins this Korea Zinc management dispute, it is not a victory that looks good." This is because the costs consumed during the dispute were substantial, and the company's financial weaknesses and owner risks were fully exposed. Considering the potential legal battles ahead, it is interpreted as a hollow glory.

There is also an opinion that this dispute has starkly revealed the backwardness of Korea's capital market, such as decision-making dominated by controlling shareholders and 'rubber-stamp' boards, as well as the side effects of Korea's uniquely pre-modern corporate culture of passing management rights down generations within corporate groups.

A chief investment officer (CIO) of a large domestic pension fund said, "From the perspective of financial investors, this dispute highlights the non-financial aspect of defending management rights by appealing to patriotism, which is regrettable," adding, "I hope this becomes an opportunity for Korean conglomerates to reflect on their governance." He said, "We need to reconsider whether the board of directors has functioned properly in a process where management rights are controlled with minority stakes, companies are manipulated at will, and decision-making prioritizes the interests of controlling shareholders over protecting minority shareholders." He added, "Only after these issues are addressed can the modernization of management rights defense measures demanded by companies proceed with national consensus."

Fund's Profit Pursuit and Capital Exhaustion Activities Highlight Risks in Korean Business Community

Some criticize that traditional PEFs like MBK investing in a manner similar to hostile activist funds is inappropriate. A CIO of a domestic mutual aid association said, "This incident is a symbolic case where the urgency of major PEFs to find promising large deals to exhaust their dry powder (uninvested capital) intersects with the vulnerable governance of Korean conglomerates."

There are concerns that various improvement demands from domestic and foreign funds targeting not only Korea Zinc but also leading domestic corporate groups such as SK and Doosan could spread as risks across the entire business community. Excessively radical and aggressive activist activities could shake the entire system of Korea's owner-managed business community at once.

Voices emphasizing that the most fundamental attitude to calm the 'MBK shock' is for companies to faithfully perform their core roles are gaining strength. To avoid becoming a 'target' of funds, it is argued that resolving the 'Korea discount' (undervaluation of the Korean stock market) is ultimately necessary. Namwoo Lee, chairman of the Korea Corporate Governance Forum, explained, "Companies that become 'prey' for PEFs are predetermined," adding, "These are companies with good fundamentals, i.e., intrinsic value and growth potential, but are legally or ethically problematic or have poor governance, resulting in undervaluation compared to competitors." He said, "Companies that have failed to 'value up' due to capital transactions for major shareholders or intentional downward pressure on stock prices should return to their fundamental attitude of raising stock prices and focusing on activities for shareholders."