Information board at Korea Zinc’s headquarters in Seoul (File photo by News1)
North Asia-focused private equity firm MBK Partners Ltd. secured a enough stake in Korea Zinc Inc. through a tender offer although its price was lower than the company’s share buyback price to take control of the world’s largest lead and zinc smelter.
Korea Zinc’s shareholders with a combined 5.34% stake, or 11 million stocks, have decided to sell their shares to MBK and the smelter’s top shareholder Young Poong Corp. by Monday, the last day of their tender offer, according to a regulatory filing.
The buyers are set to purchase those stocks at 830,000 won ($610.5) apiece, Young Poong Corp. said in the filing, lower than Korea Zinc’s buyback price of 890,000 won. The buyback may collapse if a South Korean court accepts the MBK-led consortium’s request to block Korea Zinc from buying back shares, industry sources said.
MBK and Young Poong Corp. are expected to raise their stake in Korea Zinc to 38.47%. That compared with a 38.4% stake in total held by Korea Zinc Chair Choi Yun-birm and his allies such as Bain Capital and Young Poong Precision Co. The US private equity firm planned to buy a 2.5% stake in the smelter.
The tender offer allows Korea Zinc to buy back stakes of only 14.66%. Once its buyback scheme is completed, a 17.1% stake will lose voting rights, given the existing treasury stocks of 2.4%. A cultural foundation established by Choi’s father holds 0.04%.
That would increase MBK and Young Poong Corp.’s stake with voting rights to 46.4%.
MBK and Young Poong Corp. failed in their tender offer for Young Poong Precision, which holds a casting vote with a 1.85% stake in the management dispute, as Korea Zinc raised its tender offer price to 35,000 won, higher than 30,000 won of the private equity firm.
That did not affect MBK and Young Poong Corp.’s takeover as they already secured a sufficient stake in Korea Zinc, industry sources said.
Kim Kwang Il, a partner at MBK, speaks to the press about the private equity firm’s tender offer for Korea Zinc on Sept. 19, 2024, in Seoul (File photo by Yonhap)
TO OUST CHOI AND OTHER EXECUTIVES
MBK and Young Poong Corp. are expected to oust Korea Zinc’s current executives including Choi at an extraordinary shareholder’s meeting next month, the sources said.
They are likely to succeed in the reshuffle as Hyundai Motor Group with a 5.05% stake in the smelter, has yet to unveil its stance on which side it will support, fueling expectations that the world’s third-largest automaker may not back Choi.
MBK and Young Poong Corp.’s stake with voting rights is likely to rise to 49.6% once the South Korean auto conglomerate with Hyundai Motor Co. and Kia Corp. does not cast a vote at the extraordinary shareholders’ meeting.
“MBK and Young Poong Corp. are predicted to win a majority if shareholders with 4-5% stakes such as passive funds do not exercise their votes at the meeting,” said one of the sources.
Korea Zinc currently has 13 members on its board of directors with 12 of them Choi’s allies. Chang Hyung-jin, Young Poong Group’s advisor, is the only director who joined MBK.
The private equity firm and the group are expected to take control of Korea Zinc, which does not limit the number of its board members, if they appoint 12 or more.
MBK and Young Poong Corp. are likely to buy more stocks in the market or persuade the existing shareholders to join them for a stable takeover, the sources said.
Korea Zinc Chair Choi Yun-birm (left) at a press conference on Oct. 2, 2024 (File photo by News1)
FAILED ATTEMPT WITH HIGHER PRICE
Korea Zinc failed to attract shareholders to its share buyback program although it vowed to purchase more stocks at a higher price of 890,000 won per share than MBK and Young Poong Corp.’s tender offer price of 830,000 won apiece.
Many institutional investors saw legal risks from Korea Zinc’s buyback plan, according to the sources.
Choi said the company has 6.1 trillion won for the buyback, while MBK and Young Poong Corp. asked a local court to ban the countermeasure against its tender offer. MBK Young Poong Corp. said it must be approved through a shareholders’ meeting to use discretionary reserves to buy back shares.
“We will do our utmost to block Chair Choi’s share buyback,” said an MBK official.
The court is expected to make a ruling around Oct. 21, ahead of the closing of Korea Zinc’s buyback on Oct. 23. Institutional investors may have divided their holdings to minimize legal risks and participate in both the tender offer and the buyback, industry sources said.
MBK and Young Poong Corp. also scrapped the minimum limit of its public purchase to attract more shareholders.
Young Poong Group was founded by Chang Byung-hee and Choi Ki-ho in 1949. The group’s two major affiliates have largely been run by their descendants. The Chang family controls Young Poong Corp. and the electronic parts units, while the Choi family manages Korea Zinc and the non-electronics units.
Their conflicts heated up as Korea Zinc, the conglomerate’s cash cow, issued new shares to Hyundai Motor Group and swapped treasury stocks with Hanwha Corp. and LG Chem Ltd.
The smelter accelerated its efforts to terminate its decades-long business relations with Young Poong Group by dominating the boardroom of group affiliate Sorin Corp in June.
By Hyung-Kyu Kim, Woo-Sub Kim, Sang Hoon Sung and Jong-Kwan Park
khk@hankyung.com
Jongwoo Cheon edited this article.
