MBK Partners wades into Korea Zinc management dispute

Kim Byung-ju, Chairman of MBK Partners (left), and Choi Yun-beom, Chairman of Korea Zinc. (Each company)

The dispute over management control of South Korean non-ferrous metal smelting company Korea Zinc Co. entered a new phase as MBK Partners, Korea’s largest private equity fund (PEF) manager, entered the fray.

According to sources from the investment banking (IB) industry on Thursday, MBK Partners entered into an agreement with Young Poong Co. and its specially related parties to exercise voting rights jointly, while it also plans to acquire additional shares of Korea Zinc via a public tender offer.

Young Poong and its affiliates held an approximately 33.1 percent stake in Korea Zinc as of the end of the second quarter of 2024, according to the Financial Supervisory Service’s electronic disclosure system on Thursday.

The sources said that MBK’s special purpose vehicle (SPC) Korea Corporate Investment Holdings and Young Poong plan to hold a public tender offer for 1,445,036 to 3,024,881 shares (approximately 7 percent to 14.6 percent) of Korea Zinc over a 22-day period from Friday to October 4th, 2024. Of the tender offer, MBK plans to acquire up to 3,014,881 shares, and Young Poong aims to purchase up to 6,869,254 shares.

The tender offer price is set at 660,000 won ($493.18) per share, which is 18.7 percent higher than the closing price on Thursday. NH Investment & Securities Co. will serve as the lead underwriter, according to the sources.

Young Poong and MBK Partners are believed to have decided that securing at least 7 percent of Korea Zinc’s shares will enable them to surpass 40 percent ownership, ensuring stable management control. With MBK Partners stepping in, industry insiders turned their attention to how other conglomerates that are considered Korea Zinc allies, such as Hyundai Motor Group and LG Group, will respond.

Korea Zinc Chairman Choi Yun-beom has been solidifying his control by securing friendly shares and gaining control over the company’s subsidiary Sorin Corp. Choi held a 1.8 percent stake in the company as of the end of the second quarter of 2024, while his affiliates held a 15.6 percent stake. The friendly shares, including those held by LG, Hyundai Motor Group, and global commodity trading company Trafigura Group Pte, are estimated to be around 16.2 percent.

MBK also plans to separately hold a public tender offer for up to 6,840,801 shares of Young Poong Precision Corp. for 20,000 won per share from Friday to October 4th. The total amount is 136.8 billion won. If the tender offer is successful, MBK and the family of Young Poong adviser Chang Hyung-jin, who already owns 5.71 percent of the company’s shares, will secure a 49.14 percent stake in the company. Young Poong Precision holds a 1.85 percent stake in Korea Zinc.

Although it would cost about 250 billion won to acquire the 1.85 percent stake in Korea Zinc at 660,000 won per share, MBK believes it can secure management control of Young Poong Precision with 136.8 billion won.

The Choi family is expected to seek additional allies to counter Young Poong and MBK. An IB industry insider noted that “how major corporations play their shares will play a significant role in the shareholder agreement and public tender offer process.”

Industry insiders are also paying attention to the National Pension Service, which holds a 7.8 percent stake in Korea Zinc. They believe that Young Poong and MBK did not initiate this public tender offer with prior coordination with the public pension fund.

The National Pension Service sided with Korea Zinc’s management during the last annual general shareholder meeting. It is also expected that the group companies and foreign companies that are major Korea Zinc shareholders will not easily change their stance as they are engaged in partnerships with the company, particularly in future businesses like battery materials.

Korea Zinc, which has operated under a “two families under one roof” management structure for 70 years, saw this system begin to show cracks after the third generation of management took over in late 2022.

Young Poong’s Chang family holds a nearly 33 percent stake in Korea Zinc, while Young Poong is the largest single shareholder in the company.