Choi Yun-beom, chairman of Korea Zinc, is moving to defend management rights by utilizing the 'cross-shareholding limitation' system just a day before the extraordinary general meeting.
On the 22nd, Chairman Choi's side announced that it has sold approximately 192,226 shares (10.33%) of Young Poong's equity, held by the Choi family and Young Poong Precision Corporation, one of the shareholders of Korea Zinc, to 'Sun Metal Corporation' (SMC), a 100% subsidiary of Korea Zinc, through an off-market transaction.
Chairman Choi's side noted that "SMC acquired the equity based on the closing price on the 21st from Young Poong Precision, and it took over Young Poong shares from the Choi family at a price discounted by 30% from the closing price on the 21st, thus greatly benefiting the company financially."
This transaction has created a circular investment structure in Korea Zinc's governance. Circular investment refers to when affiliates of the same company invest in each other. Korea Zinc fully controls SMC through Sun Metal Holdings, which acts as an intermediate holding company based in Australia. Now that SMC has secured 10.33% of Young Poong's equity, it has gained control over Young Poong, which holds 25.42% of Korea Zinc's shares.
SMC's acquisition of Young Poong's equity is aimed at exploiting the cross-shareholding limitation under the Commercial Act (Article 369, Paragraph 3). The Commercial Act states that if two companies hold more than 10% (one-tenth of the total issued shares) of their respective equities, each company cannot exercise voting rights against each other.
Chairman Choi's side argued that MBK Partners and Young Poong hold approximately 40% of Korea Zinc's equity, but they cannot exercise voting rights equivalent to the equity held by Young Poong. As of November last year, Young Poong held about 25% of Korea Zinc's equity.
A representative from Korea Zinc stated, "In the past, there have been cases where companies have acquired more than 10% of the equity of firms attempting hostile takeovers to establish a cross-shareholding relationship and defend management rights," and that "until MBK and Young Poong present countermeasures, the extraordinary general meeting is beneficial for Korea Zinc."
MBK Partners has strongly criticized the transaction. MBK claimed, "It has created a circular investment structure prohibited by the Fair Trade Act by involving foreign companies, and is trying to apply voting rights restrictions on cross-shareholding. The provisions of the Commercial Act regarding cross-shareholding apply only to domestic corporations. SMC is a foreign company and a limited liability company, so the voting rights restrictions do not apply."
MBK further added, "We will explain the wrongful attempt at unjust and illegal voting rights restrictions at the shareholder meeting and ensure the rightful exercise of voting rights."