Korea Zinc is set to hold an extraordinary general meeting on the 23rd, with the National Pension Service, which holds 4.5% equity, effectively supporting the existing management led by Chairman Choi Yoon-bum. They have decided to vote in favor of major agendas, including the introduction of a cumulative voting system and limits on the number of directors. However, they agreed to support three candidates each from MBK Partners-Young Poong and Chairman Choi's side in a balanced manner.
As the National Pension Service supports Chairman Choi's proposals, the choice of foreign institutions holding 7% equity has become very important. The two largest public funds in North America are already supporting MBK-Young Poong. The results of the injunction banning the agendas are also crucial. If the court finds that electing directors through a cumulative voting method is unlawful, the cumulative voting system cannot be applied in this general meeting, regardless of the National Pension Service's support. Conversely, if the court dismisses the injunction, it will bring Chairman Choi's side one step closer to victory. This makes predicting the outcome of the general meeting even more challenging.
◇Choice of 'casting voter' National Pension Service holding 4.5% equity
According to the Ministry of Health and Welfare on the 17th, the National Pension Service's Trust Responsibility Committee (hereafter referred to as the Committee) held a meeting that afternoon to discuss the voting direction regarding the agenda for the Korea Zinc extraordinary general meeting. The Committee decided to support both the introduction of the cumulative voting system and the amendment to the articles of incorporation concerning the limit on the number of directors. Both proposals were submitted by Chairman Choi's side.
The cumulative voting system allows each shareholder to receive as many votes as there are director candidates and concentrate them on specific candidates during the election. Unlike simple voting, where a majority shareholder can elect the directors they want, it enhances the voting rights of minority shareholders.
If the cumulative voting system is approved at this extraordinary general meeting and a voting session is held based on this premise for the director election proposal, Chairman Choi's side will be able to present multiple desired candidates to the board of directors. In a situation with N director candidates under the cumulative voting system, if a minority shareholder holds more than 100/(N+1)% of the equity, they can concentrate their votes to ensure the election of their preferred candidate. Given that there are 21 director candidates on the agenda for this extraordinary meeting, simple calculations suggest that the required equity to elect one desired candidate is estimated to be 4.5%.
Therefore, if the equity held by Chairman Choi's side is strategically divided among candidates they wish to support, the election of those candidates will be assured. The Choi family, registered in the Korea Zinc shareholder list, is identified as comprising 52 shareholders. The Kyungwon Cultural Foundation has been excluded due to not holding voting rights. Their total equity is 17.5%, and based on voting rights, it is about 19.9%.
Additionally, the Committee decided to support Chairman Choi's proposal to limit the number of directors to 19 or fewer. Currently, there is no upper limit to the number of directors stated in Korea Zinc's articles of incorporation.
In the meantime, the industry has viewed that the National Pension Service's decision on whom to support will significantly influence the outcome. The National Pension Service holds 4.5% equity in Korea Zinc (based on the number of issued shares). Excluding MBK-Young Poong's combined equity (40.97%) and the Choi family and friendly shareholders' estimated equity (around 34%), it holds the highest equity among individual shareholders. Moreover, foreign institutions hold 7%, while domestic institutions and individual investors collectively hold less than 1%. The company's own shareholding ratio is 12.26%, but it has no voting rights.
However, the fact that the National Pension Service supports the introduction of the cumulative voting system does not mean the outcome is finalized. The articles of incorporation amendment agenda for introducing the cumulative voting system is subject to the so-called '3% rule,' which limits voting rights to 3% of the total number of issued shares. As a result, Chairman Choi's side must secure the support of 700,000 to 800,000 shares, in addition to their existing friendly shareholders, to pass the proposal. In terms of issued shares, this corresponds to about 3.4% to 3.8%, while based on voting rights, it accounts for about 3.8% to 4.4%.
Meanwhile, the Committee decided to support the introduction of the cumulative voting system and the board size limitation agenda for Chairman Choi but agreed to support three candidates each from both sides equitably. The candidates recommended by MBK-Young Poong include former Woori Bank President Kwon Kwang-seok, Sogang University Professor Kim Yong-jin, and former Chief Judge of the Seoul High Court Byeon Hyun-cheol. Candidates from Chairman Choi's side include James Andrew Murphy, a senior advisor at Oliver Wyman, Myung-ji University Business School Dean Jeong Da-mi, and KAIST Professor Choi Jae-sik.
Additionally, the Committee decided to support all the remaining agenda items proposed by MBK-Young Poong, including the introduction of an executive officer system.
◇What will foreign institutional investors with 7% equity decide?…Major voting advisory firms present opposing opinions
With the National Pension Service's voting direction now set, attention is shifting to foreign institutional investors. Their stake is approximately 7%, which is 2.5 percentage points higher than the National Pension Service. It is no exaggeration to say that the outcome depends on which side they support.
Previously, the top two public funds in the U.S., the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CALSTRS), opposed the introduction of the cumulative voting system for Korea Zinc. Both institutions also opposed all seven outside director candidates recommended by Chairman Choi's side. They only supported four candidates among the MBK Partners-Young Poong side.
The voting inclinations of overseas institutions, including these funds, are significantly influenced by global proxy advisory firms' opinions. The two major advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, have expressed opposing views on major agendas. On the 9th (Korean time), ISS recommended opposition to Chairman Choi's proposal for introducing the cumulative voting system and advised against all seven outside director candidates nominated by him. However, they supported the limitation of the board size to 16 members.
In contrast, Glass Lewis recommended support for the introduction of the cumulative voting system and limits on the number of directors. They also expressed support only for candidates recommended by Chairman Choi.
◇Injunction against agenda registration prohibition, interpretation of the Commercial Code is key
For MBK-Young Poong, the outcome of the injunction against agenda registration prohibition has become more significant. The key issue is whether it is possible to elect directors using the cumulative voting system in this general meeting.
Both sides are sharply divided over how to interpret the legal wording relating to the cumulative voting system. Our Commercial Code stipulates that applying for the election of directors through cumulative voting is possible under exceptional conditions, and what constitutes these 'exceptional conditions' is the crux of the matter.
On this day, MBK Partners-Young Poong and Chairman Choi's sides faced each other during the hearing for the injunction against agenda registration prohibition in the 50th Civil Division of the Seoul Central District Court (Director General Kim Sang-hoon).
The proposal contested by MBK-Young Poong in this extraordinary general meeting is the second and third proposals, which are contingent on the passage of the first proposal. The first proposal is an amendment to the articles of incorporation for introducing the cumulative voting system, and the second and third proposals are for the appointment of directors based on the passage of the first proposal.
Regarding this, both MBK-Young Poong and Chairman Choi's sides are interpreting the following clause of the Commercial Code differently.
When there is a meeting of shareholders for the purpose of appointing more than two directors, shareholders holding shares equivalent to 3% or more of the total number of issued shares, excluding non-voting shares, may except as otherwise provided in the articles of incorporation request the company to appoint directors by cumulative voting.Commercial Code Article 382-2, Paragraph 1
The problematic phrase here is 'except as otherwise provided in the articles of incorporation.' MBK-Young Poong believes this phrase modifies 'may request.' In other words, it is interpreted that in order to apply for the election of directors through cumulative voting, it must not be contrary to the articles at the time of requesting.
The party requesting the election of directors by cumulative voting at this extraordinary general meeting is the Choi's supporting shareholder Yumi Development. MBK-Young Poong argues that since cumulative voting was not allowed by Korea Zinc's articles of incorporation as of the date of Yumi Development's request for the director election on the 10th of last month, the agenda registration is unlawful. It is common for domestic listed companies to exclude cumulative voting by their articles of incorporation. Yumi Development has proposed changing the articles to allow cumulative voting.
In contrast, Chairman Choi's side argues that 'except as otherwise provided in the articles of incorporation' modifies 'to appoint directors by cumulative voting.'
Chairman Choi's side also cites Commercial Code Article 363-2 as a basis. The relevant clause stipulating general shareholder proposal requirements states, 'Shareholders may propose in writing or electronically to include certain matters in the agenda for a shareholders' meeting at least six weeks before the meeting,' and there is no phrase 'except as otherwise provided in the articles of incorporation.' This implies that proposals can be made regardless of the content of the articles of incorporation.
Chairman Choi's side asserts that the introduction of the cumulative voting system is similar in nature to shareholder proposals and can be made up to six weeks before the meeting, claiming that Yumi Development's agenda is legitimate.
The results of this injunction are expected to be announced by the 21st at the latest. If the injunction is granted, both sides will have to elect directors through a regular voting method rather than a cumulative voting method in this extraordinary general meeting. In this case, MBK-Young Poong, with over 46% voting equity, will have the advantage. Conversely, if the injunction is dismissed, it is likely that directors will have to be elected through the cumulative voting method at this general meeting, which would greatly benefit Chairman Choi's side.