It has been a year since private equity firm MBK Partners and Young Poong attempted a hostile merger and acquisition (M&A) to seize control of Korea Zinc. Korea Zinc kept control but had to give up some board seats to the MBK–Young Poong side. MBK–Young Poong succeeded in entering the Korea Zinc board, but the move gave the political sphere an excuse to tighten regulations on private equity funds, dealing a blow to both sides.
On Sept. 13 last year, MBK–Young Poong abruptly announced it would buy 1,445,036 to 3,024,881 shares of Korea Zinc (about 7–14.6% of total outstanding shares) at 660,000 won per share, attempting to take control. Korea Zinc later bought back its own shares and proposed a tender offer price of 890,000 won per share, barely succeeding in defending control. Since then, Korea Zinc and MBK–Young Poong have exchanged 24 lawsuits and entered a prolonged standoff.
As the control dispute unfolded, the composition of the Korea Zinc board also changed. The Korea Zinc board currently has 19 members in total, with 15 active excluding four whose duties are suspended due to lawsuits. The 15 consist of 11 from the Korea Zinc side and four from the MBK–Young Poong side. Until now, only Young Poong adviser Jang Hyeong-jin attended the Korea Zinc board from the Young Poong side, but Young Poong President Kang Seong-du, MBK Partners Vice Chairman Kim Gwang-il, and former Woori Bank President Kwon Gwang-seok joined as allies.
Korea Zinc is preparing for the regular shareholders' meeting in March next year, when the terms of five directors, including Chair Choi Yun-beom, expire. Korea Zinc is expected to focus on maintaining the current board composition as much as possible through cumulative voting, which will apply starting with the March shareholders' meeting next year.
Cumulative voting is a system that grants voting rights equal to the number of directors to be elected per share when electing two or more directors at a shareholders' meeting. Because votes can be concentrated, it favors Chair Choi's side, which is at an equity disadvantage compared with MBK–Young Poong.
The Korea Zinc control dispute also became the starting point for the creation of a private equity regulation law. In particular, as MBK Partners' sale of Homeplus sparked controversy, calls gained traction to reduce leverage limits for private equity funds and require disclosure of management information.
Rep. Han Chang-min of The Social Democratic Party of Korea last month bundled revisions to the Capital Markets Act and the National Pension Service Act and proposed what is known as the "MBK private equity regulation law." The core of the MBK private equity regulation law is to introduce: ▲ stronger information disclosure ▲ regulation of National Pension Service investments ▲ conflict-of-interest prevention ▲ regulation of leveraged buyouts (LBOs).
Rep. Kim Nam-geun of the Democratic Party of Korea, referencing the European Union (EU) Alternative Investment Fund Managers Directive (AIFMD), proposed a Capital Markets Act amendment that would restrict high dividends, share buybacks, and capital reductions within two years after acquiring corporations, and require buyers using leverage to report to the Financial Services Commission, etc., when selling an asset.
Rep. Kim Hyun-jung of the Democratic Party also previously proposed a Capital Markets Act amendment reducing the leverage limit for private equity funds from 400% to 200% of net worth. MBK financed a substantial portion of the funds used for Korea Zinc equity with loans. These bills are currently pending in the National Assembly.
A business community source said, "After the control dispute, Korea Zinc faced criticism for defending control with company money, while MBK–Young Poong was criticized for seeking to acquire the company with loans," and added, "As concerns even arose over the potential overseas outflow of Korea Zinc's core technology, both sides were left only with wounds."