Management dispute between Young Poong and Korea Zinc escalates

Members of the Korea Zinc Union rally in front of MBK Partners headquarters. Courtesy of the Korea Zinc Union

The management control dispute between Young Poong and Korea Zinc, two companies that have been partners for 75 years, is escalating. The conflict, which also involves private equity firm MBK Partners, is being watched closely by those inside and outside the business community to see how it will affect the supply chain of materials for Korea's high-tech industry.

MBK Partners, which is pursuing a tender offer with Young Poong, held a press conference at the Lotte Hotel in Seoul on September 19, claiming that “Korea Zinc has made reckless investments with an abnormal corporate decision-making structure, leading to concerns about its profitability and financial health.”

Founded in 1949 by the late chairmen Jang Byung-hee and Choi Ki-ho, Korea Zinc has been under a joint management system with the Choi family exercising control and the Jang family remaining the largest shareholder. However, MBK Partners and Young Poong claimed that Choi Yoon-beom, chairman of Korea Zinc, unilaterally executed a third-party capital increase, causing a change in the shareholding, which led to a crack in the joint management system and forced them to make an open purchase.

Kim Kwang-il, vice chairman of MBK Partners, explained that Young Poong’s reason for granting MBK Partners the status of the largest shareholder was to “separate ownership and management and operate Korea Zinc under a specialized management system.” Some argued that Chairman Choi's lax management has put Korea Zinc in crisis.

According to MBK Partners, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fell to 10.1 percent last year from 16.2 percent in 2019, when Choi took office as president, and its operating margin fell to 6.8 percent from 12 percent over the same period. The company's financial health has also deteriorated, with debt rising significantly and net cash depleting, with 30 of the 38 businesses Choi has pushed through incurring net losses, mostly due to reckless investments made without the board’s approval.

However, Korea Zinc countered that its “consolidated debt-to-equity ratio at the end of June was 36 percent and its dependence on borrowings was 10 percent, showing a very strong financial structure.” As for the companies it has invested in, it said, “Young Poong and MBK Partners excluded the 2022 net income of blue-chip companies, such as Company L and Company H, in the process of summing up the net income of companies invested in by Korea Zinc since 2021,” adding that “including them, the total net income of the companies we invested in is 'trillions of won.’”

In a letter to employees on the same day, Choi encouraged them, saying, “We will do our best to block MBK Partners’ tender offer.” The Korea Zinc union also said in a statement, "We are facing a huge threat of losing our company to corporate hunter MBK Partners. We will fight to the end to protect our right to live."

Industry analysts believe that the management dispute is not only about the issue of shares and succession between the Young Poong owner's family, but also about the high growth potential of Korea Zinc.

Korea Zinc is the world's No. 1 smelter of non-ferrous metals. It serves as a key supply chain for basic materials for domestic high-tech industries, such as electronics, semiconductors, automobiles, and secondary batteries. It is also actively expanding new businesses by establishing collaborative relationships with domestic battery and automobile companies, such as LG Chem, Hanwha, and Hyundai Motor Group. These conglomerates hold stakes in Korea Zinc. The company is also planning to invest about 500 billion won to smelt high-purity nickel sulfate, a key mineral in anode materials, from 2026.

※This article has undergone review by a professional translator after being translated by an AI translation tool.