The proxy battle among the parties involved in the management rights dispute of Korea Zinc will begin on the 28th. Currently, the equity held by minority shareholders, including individual and institutional investors, is estimated to be around 10% (based on voting rights), and both sides are expected to work hard to win their votes. The goal is to secure more votes in the extraordinary general meeting scheduled for January 23 next year to elect their preferred candidates to the board.
The key is "speed." While it is important to persuade with proposals, shareholders who sold their stocks after the closure date of the shareholder register are likely to write proxies for the first party that approaches them rather than reviewing the proposals and blueprints of both sides.
According to investment banking (IB) sources on the 27th, the largest shareholder of Korea Zinc, MBK Partners, along with Youngpoong and the existing management led by Chairman Choi Yun-bum, will begin soliciting voting rights proxies on the 28th. Solicitation of voting rights proxies refers to the act of encouraging shareholders to delegate their voting rights. The proxy solicitation documents and related references will be disclosed on the Financial Supervisory Service electronic disclosure system, and solicitation can begin two business days after disclosure. Since MBK Partners and Chairman Choi disclosed on the 24th, they can start soliciting after two business days (26th and 27th) on the 28th. In the case of Youngpoong, they disclosed on the 26th, so solicitation can begin on the 31st.
MBK Partners and Chairman Choi are expected to move quickly to secure proxies from the 28th. To solicit proxy votes, they will need to visit shareholders' residences directly. They must explain the proposals to the shareholders and persuade them to write proxies. A financial investment industry official noted, "There are cases where shareholders are not at their residence and often have different actual residences, so it's common to persuade them over the phone instead of meeting in person."
The target of the proxy battle is the minority shareholders who are estimated to hold 10% of the equity. Currently, based on the number of shares issued, MBK and Youngpoong hold 40.97%, the Choi family and friendly shareholders are in the low to mid-30% range, and other minority shareholders are estimated to hold less than 10%. It is reported that the National Pension Service held 7.8% before the start of this management rights dispute but is said to have sold about half of that. The volume that is estimated to be sold is said to have almost all been sold in the market. On the other hand, the proprietary account managed directly by the National Pension Service is reportedly kept intact.
The estimated voting rights basis equity is 46.7% for Youngpoong and MBK, under 40% for the Choi family and friendly shareholders, around 4% for the National Pension Service, and about 10% for other minority shareholders. However, industry officials express doubt about whether all of the 10% will be the subject of the proxy vote, suggesting there may be equity held under nominee names.
Additionally, among the minority shareholders, those who sold their stocks after the 20th are likely to write proxies for whichever party visits them first. A voting rights agency official stated, "Shareholders who continue to hold their equity are likely to consider both sides' proposals or future plans seriously, but those who have already sold are easily inclined to support the side that visits them first," adding that "the side that visits later must persuade them to revoke the proxy granted to the other side, which requires much more effort to achieve their goals."
According to the Korea Exchange, it appears there has been quite a bit of turnover in Korea Zinc stocks from the 20th, the closure date of the shareholder register, until today (27th). During three days from the 23rd to the 26th, individuals sold a net total of 5,773 shares, and on the 27th, net purchases amounted to 17,684 shares. Foreign investors reportedly net sold 84,974 shares. Furthermore, pension funds net sold 16,472 shares, while domestic institutions net purchased 74,425 shares.
Chairman Choi's side is expected to persuade the shareholders by arguing that if MBK acquires management rights to Korea Zinc, it would fall into the hands of private equity (PE) firms, jeopardizing the nation's key industries. Thus far, Chairman Choi's side has focused on attacking MBK's "nationality issues," based on the fact that most fund investors managed by MBK are foreign institutions. In response, MBK has stated, "We are a legitimate Korean corporation and a homegrown private equity fund."
Additionally, Chairman Choi's side is likely to argue that MBK might resell Korea Zinc to China in the future and that employees of Korea Zinc could go on strike if MBK takes over the board. In reference documents for soliciting voting rights, Chairman Choi's side wrote, "MBK Partners lacks expertise in the metallurgy industry and is likely to operate for short-term profits by selling off our main businesses and assets to secure investment returns," while at the same time asserting that Youngpoong lacks competitiveness in the metallurgy industry.
Furthermore, Chairman Choi's side seems set to prominently promote the cumulative voting system they presented as Proposal No. 1-1 during this event. In the existing simple voting system, MBK and Youngpoong, having secured nearly half the equity, had the advantage; however, they are expected to emphasize that the introduction of the cumulative voting system will protect the rights of minority shareholders.
In contrast, MBK and Youngpoong are reportedly taking legal action by applying for an injunction against the cumulative voting system. They are also expected to focus on attacking past investment cases handled by Korea Zinc under Chairman Choi, including those involving Ignio and One Asia Partners.
MBK has claimed that Korea Zinc has continued to make poor investments under Chairman Choi's leadership, causing a loss of corporate value amounting to 2.5 trillion won. Vice Chairman Kim Kwang-il stated at a press conference on the 10th, "If we eliminate such issues (poor investments) in the long term, the company's intrinsic corporate value could rise to 14 trillion won," noting that before this management rights dispute began, Korea Zinc’s market capitalization was only in the 10 trillion won range.
MBK has raised issues regarding Korea Zinc's investments in Ignio Holdings, One Asia Partners, and Jeongseok Group. They allege that starting with a commitment of 90 billion won to One Asia Partners, which had been established for less than four months, Korea Zinc invested more than 500 billion won across eight funds over three to four years, due to the close relationship between Jeong Seok-bae, the representative of One Asia, and Chairman Choi Yun-bum. The One Asia fund is allegedly linked to price manipulation involving SM Entertainment and has invested in Jeongseok Corporation, a subsidiary of Hanjin Group.