The management rights dispute at Korea Zinc continues to have twists and turns. Since September of last year, MBK Partners and Young Poong, which seek to take control of Korea Zinc, and Chairman Choi Yoon-bum's camp, which aims to defend the management rights, have been locked in a battle for five months.
On the 23rd, in a shareholders' meeting of Korea Zinc, where the MBK-Young Poong alliance fell behind in equity, they attempted to turn the tide by appointing directors through a concentrated voting system, but this was thwarted by a court's intervention. It seemed the voting situation was leaning toward the MBK-Young Poong alliance, but Chairman Choi's side launched a counterattack the night before the meeting, using measures to restrict cross-shareholdings and mutual stock ownership. As a result of Chairman Choi's surprise offensive, it is expected that the management rights dispute between the two sides will become prolonged.
Private equity firm MBK Partners moved to secure management rights at Korea Zinc by entering into a shareholder agreement with Young Poong, the largest shareholder of Korea Zinc, and the family of advisory director Jang Hyung-jin in September of last year. MBK announced it would publicly purchase between 7% and 14.6% of Korea Zinc's shares at 660,000 won per share from September 13 to October 4. If the MBK-Young Poong camp secures the maximum 14.6% equity, they will obtain a majority of the voting rights. At that time, Chairman Choi's side held approximately 33.9% of equity, including friendly shares.
Chairman Choi's camp initiated a counter public buyout in order to defend against an attack through hostile mergers and acquisitions (M&A). From October 4, the last day of MBK's public buyout, to the 23rd, Chairman Choi's side announced it would invest about 3.1 trillion won to secure up to 18%, including 15.5% of treasury stock, at 830,000 won per share.
Both sides raised their public buyout prices three times, engaging in a competition to acquire equity, but they all failed to secure a majority. The MBK side raised the public buyout price to 830,000 won, securing about 5.3% equity on the last day of the public buyout on October 14, bringing its equity ownership to 38.4%. Chairman Choi's side increased its buyout price to 890,000 won, ultimately securing a total of 35.4% by adding 9.85% of treasury stock and 1.41% from Bain Capital.
The struggle for management rights between the two sides escalated after the public buyout competition into a voting battle at the shareholders' meeting and a ground trading competition for equity acquisition. The temporary shareholders' meeting, which is expected to decide the outcome of the management rights dispute, was scheduled for the 23rd of this month, and as the ground trading competition for acquiring equity intensified, the stock price of Korea Zinc once broke through 2 million won per share. This is the first time since Samsung Electronics' stock split in 2017 that a stock has reached 2 million won on the domestic market.
Ahead of the temporary shareholders' meeting, Chairman Choi's side pushed for the appointment of directors using a concentrated voting system (which allows shareholders to concentrate their votes on specific candidates based on the number of directors to be appointed) to prevent the MBK-Young Poong side from securing a majority in the board of directors. The plan was to pool the scattered friendly equity of Chairman Choi's side to the candidate for director proposed by Chairman Choi and thus protect the board. However, the court accepted the MBK-Young Poong side's application to prohibit the agenda for concentrated voting, resulting in the failure of the concentrated voting for director appointments at this temporary shareholders' meeting.
Although the court's decision seemed to tilt the temporary shareholders' meeting in favor of the MBK-Young Poong side, Chairman Choi's camp brought up measures involving cross-shareholdings and mutual stock restrictions the previous day. Chairman Choi's side transferred the Young Poong equity they held to a subsidiary of Korea Zinc, thereby limiting Young Poong's voting rights at Korea Zinc. Chairman Choi's camp sold 10.33% (190,000 shares) of Young Poong equity, held by the Choi family and Young Poong Precision Corporation, to Sunmetal Corporation (SMC), a 100% subsidiary of Korea Zinc. Korea Zinc owns 100% of Sunmetal Holdings (SMH), which in turn holds 100% of SMC. This formed a cycle of ownership structure as follows: 'Korea Zinc → SMH → SMC → Young Poong → Korea Zinc.'
Korea Zinc argues that when two companies within a cross-shareholding structure hold more than 10% equity in each other, they cannot exercise voting rights against each other under corporate law. In this case, Young Poong will be unable to exercise voting rights over its 25.42% equity at the temporary shareholders' meeting of Korea Zinc. If this occurs, the voting rights of the MBK-Young Poong alliance will be reduced to the 15% range, placing them at a disadvantage compared to Chairman Choi's camp.
The MBK-Young Poong side claimed that Chairman Choi's camp violated the mutual investment restriction under fair trade law to protect its management rights. However, Korea Zinc countered that the prohibition on cross-shareholdings applies only to domestic affiliates and not to SMC, which is headquartered in Australia. Since the two sides' claims regarding the application of legal regulations differ, it is anticipated that both sides will continue their legal battles.