Korea Zinc’s senior engineers held a press conference to protest MBK’s takeover attempt on Sept. 24, 2024
Korea Zinc Inc. will raise 2.5 trillion won ($1.8 billion) in rights issues in December following its share buybacks and allocate 20% of them to its employees, a move aimed at bolstering its defense against an MBK Partners-led group’s takeover bid.
The world’s largest lead and zinc smelter on Wednesday decided on the new share offerings at a board meeting to increase its free float and thereby reduce the delisting risk, according to its regulatory filing.
The rights offering will come on the heels of tender offers by the MBK-Young Poong Corp.’s consortium and a Korea Zinc-Bain Capital alliance this month, respectively.
The tender offers has narrowed their shareholding gap, with the MBK-led coalition’s stake exceeding that of the Korea Zinc and its friendly shareholders by about 3 percentage points. But the two sides failed to secure a majority.
Korea Zinc will issue 3,732,650 shares at 670,000 won apiece, or 25% below its buyback price of 890,000 won. The new shares will represent 20% of its outstanding shares, excluding treasury stocks it bought back at 1.8 trillion won this month for retirement.
During its tender offer, Bain Capital purchased a 1.4% stake in Korea Zinc for 260 billion won as a white knight against the MBK-led group’s takeover bid.
Eighty percent of the new shares will be allocated for public subscription on Dec. 3-4. The remaining 20% will go to its employee share ownership association in compliance with the relevant laws.
Korea Zinc Chairman Choi Yun-birm
DEBT REPAYMENT
The rights offering announcement caught investors off their guard. Its share price plunged by a daily limit of 30% to 1,081,000 won, snapping its five-day upward spiral. It came off its historic high of 1,543,000 won notched on Tuesday.
Korea Zinc will use the proceeds of 2.5 trillion for debt repayment of 2.3 trillion won, capital expenditures of 135.0 billion won and other investments.
A chunk of the debt is believed to have been used for its buybacks.
MBK Partners founder and Chairman Michael ByungJu Kim (second from right)
Korea Zinc’ battle against the MBK-led group looks set to escalate into a lengthy proxy fight due to the narrow margin between their shareholdings.
The rights offering will dilute the MBK-Young Poong alliance’s stake to around 36%.
If Korea Zinc’s employees with a combined 3.4% stake after the new share issues support its current management, it will secure about 37% of friendly shareholders, including its Chairman Choi Yun-birm and stakeholders.
NEGATIVE IMPLICATIONS
But its abrupt rights offerings could have negative implications. Some shareholders might turn their back on Korea Zinc and back MBK’s takeover attempt, investment bankers warn.
“From a short-term perspective, [Korea Zinc] appeared to get the upper hand [in the fight against MBK] by placing new shares to employee shareholders at a discount, but it will end up losing the support of other shareholders,” said an investment banker.
By Jun-Ho Cha
chacha@hankyung.com
Yeonhee Kim edited this article.
