MBK Partners, a private equity fund operator in conflict with Chairman Choi Yoon-beom over the management rights of Korea Zinc, is preparing for a full-scale voting confrontation using shareholder return measures as a weapon. They have proposed stock splits and total buybacks of treasury shares while emphasizing the need to enhance governance transparency to eliminate 'faulty investments.' They also did not forget to appeal to shareholders by claiming that the company's value was reduced by about 3.4 trillion won due to the chairman's investments in Won Asia Partners and Ignio, as well as public purchases of treasury shares.
On the other hand, MBK indicated a somewhat conciliatory attitude, stating that they would collaborate with Chairman Choi's associates even if they win the voting confrontation at the upcoming shareholders' meeting. They referred to themselves and Youngpoong as 'major shareholders' and emphasized that these major shareholders should engage in mutual checks within the board of directors and focus solely on enhancing corporate value.
◇ 'We will push for stock splits and total buybacks of treasury shares.'
On the morning of the 10th, MBK held a press conference at the Lotte Hotel in Sogong-dong, Seoul, announcing plans to enhance shareholder value and improve governance at Korea Zinc.
MBK and Youngpoong currently hold about 40% of Korea Zinc shares and are preparing for an extraordinary shareholders' meeting on Jan. 23 next year. The agenda for the extraordinary shareholders' meeting includes the appointment of Kim Kwang-il, vice chairman of MBK, and Kang Seong-du, president of Youngpoong, along with 12 others, including former Financial Supervisory Service chief Yoon Seok-heon, as outside directors. They have also proposed an agenda for the introduction of an executive officer system, which involves entrusting company management to executive officers while allowing major shareholders to step back and only participate in the board meetings.
Vice Chairman Kim stated, 'The circulation volume has significantly decreased, and to resolve this, stock splits are necessary rather than capital increases.' This comment was aimed at Chairman Choi's previously announced but later withdrawn capital increase plan of 2.5 trillion won. He added, 'The Korea Zinc board of directors attempted a public offering to address the instability caused by the sharp decrease in stock circulation following the public purchase, but the essence of that attempt was to defend Chairman Choi's management rights.'
MBK announced its intention to pursue a 5-to-1 or 10-to-1 stock split once it gains entry into the board of directors. The likelihood is high that the Korea Zinc split will occur at a ratio of 10-to-1. Currently, since the par value is 5,000 won, if split at 10-to-1, it will become 500 won. The stock price is currently fluctuating around 1.5 million won, but after the split, it is expected to drop to around 150,000 won, increasing the number of shares by tenfold. The current estimated circulating shares of Korea Zinc by MBK account for only 15% of the total issued shares.
Vice Chairman Kim noted, 'Chairman Choi's side has not yet retired the treasury shares acquired through this public purchase and is continuously delaying it,' adding, 'When I pointed this out, they responded that they would file charges against me for defamation, but instead, they should retire them immediately.' The authority to retire the shares has been delegated to Park Ki-deok, CEO of Korea Zinc.
Vice Chairman Kim noted, 'Chairman Choi's side has not yet retired the treasury shares acquired through this public purchase and is continuously delaying it,' adding, 'When I pointed this out, they responded that they would file charges against me for defamation, but instead, they should retire them immediately.' The authority to retire the shares has been delegated to Park Ki-deok, CEO of Korea Zinc.
Additionally, MBK Partners announced that it would regularize the disclosure of its dividend policy. This means the board of directors will regularly pass a dividend policy outlining principles, standards, and procedures for dividends. Indicators such as cost of equity and return on equity (ROE) will assist in predicting the dividend policy, and MBK plans to draft a report containing assessments and improvement measures after reviewing these indicators to present it at the regular shareholders' meeting.
Currently, Korea Zinc's return on equity stands at around 5-6%. This indicates that the profits generated from a certain level of capital have gradually decreased over the past three years. Vice Chairman Kim explained, 'If the stock earnings do not exceed the cost of equity, it's not a good investment,' adding, 'To raise the return on equity, we either need to work hard in our main business to increase profits or reduce our equity.' Dividends and treasury stock retirements can also affect equity.
MBK also stated that it would enhance Korea Zinc's total shareholder return (TSR), which refers to the total return that shareholders can obtain over a certain period. Korea Zinc's TSR reached over 30% in the past, but it currently stands at a negative 5%.
Regarding this, Vice Chairman Kim stated, 'The loss of 2.5 trillion won in corporate value was due to faulty investments that should not have been made under Chairman Choi's regime.' He claimed that MBK is investing up to 900 billion won in this public purchase of treasury shares, alleging that there was a destruction of shareholder value amounting to approximately 3.4 trillion won. Vice Chairman Kim further commented, 'If we eliminate such matters in the long run, the intrinsic corporate value could rise to 14 trillion won.' Before this management rights dispute began, Korea Zinc's market capitalization was only around 10 trillion won.
The 'investments that should not have been made' pointed out by MBK refer to investments in Ignio Holdings, Won Asia Partners, and Jeongseok Group. MBK has claimed that Korea Zinc's commitment of 90 billion won to Won Asia Partners, which was established less than four months after Korea Zinc, led to over 500 billion won in investments into eight funds over three to four years due to the personal ties between Ji Chang-bae, the representative of Won Asia, and Chairman Choi Yoon-beom. There are allegations that the Won Asia fund was involved in stock price manipulation of SM Entertainment and that it has also invested in Jeongseok Corporation, an affiliate of Hanjin Group.
Vice Chairman Kim stated, 'Korea Zinc purchased equity worth 48 billion won in Jeongseok Corporation through the Won Asia fund, but currently, the Hanjin owners hold call options, so basically, this is all debt.' The essence of MBK's argument is that the board of directors failed to carry out proper oversight during the execution of these investments.
◇ 'We will accept what can be accepted from Chairman Choi's agenda.'
Moreover, MBK stated that it would establish rules enabling minority shareholders to recommend candidates for separately elected outside directors, thus promoting participation and management oversight by minority shareholders. The introduction of a system for outside directors protecting shareholder rights is also linked to this. Vice Chairman Kim stated, 'We will designate one of the outside directors as a commissioner for protecting shareholder rights, who will be responsible for meeting with minority shareholders and attending shareholder IR.' The individual MBK is considering is attorney Cheon Jun-beom, who is currently named as a candidate for outside director.
Additionally, MBK announced its intention to formally establish an internal transaction committee to thoroughly review transactions involving not only the largest shareholders but also major shareholders' relatives and affiliates. MBK explained that because Chairman Choi is not the largest shareholder, he is not obliged to submit transactions with affiliates for review by the board of directors under fair trading law. Vice Chairman Kim noted, 'If we raise the standards above fair trading law and ensure that all special transactions involving major shareholders and their affiliates are thoroughly reviewed by the internal transaction committee, investments like those in Won Asia would become impossible.'
MBK Partners did not present this agenda for the upcoming extraordinary shareholders' meeting. In this regard, Vice Chairman Kim said, 'There are already too many items on the agenda for the extraordinary shareholders' meeting, which could confuse shareholders when they vote,' adding, 'We will first gain entry into the board and review these items before addressing them at next year's regular shareholders' meeting.'
On this day, Vice Chairman Kim also made somewhat conciliatory gestures towards Chairman Choi's side. He stated, 'This is not to say that the existing executives should step down, but rather that the largest shareholders (MBK and Youngpoong) should also participate in the board of directors,' emphasizing, 'This is not a hostile merger and acquisition.' He added, 'Korea Zinc has outstanding professional management, so we should allow them to demonstrate their capabilities free from major shareholders while the major shareholders (MBK-Youngpoong, Chairman Choi) oversee one another in the board.'
Vice Chairman Kim emphasized that even if MBK and Youngpoong win at the extraordinary shareholders' meeting and appoint as many directors as they wish, the fact that the Choi family remains the second-largest shareholder does not change, and operating the company properly without their help would be difficult. He stated, 'I believe that the items we presented today can form a consensus, rather than being in competition with Chairman Choi,' adding, 'The second-largest shareholder (Chairman Choi) is expected to present amendments to the articles of incorporation next week or the week after, and we will accept what can be accepted from those items.'