[KH Explains] Is private equity giant MBK a risk-taker or renegade?

$30b fund manager crosses fine line between private equity, activist fund amid evolving buyout environment

Michael Byung-ju Kim, co-founder and chairman of MBK Partners (MBK Partners)

MBK Partners, the country’s leading private equity house with over $30 billion to its name, has once again found itself meddling in an ownership turmoil, as it moves beyond its typical buyout-and-exit strategy.

Last month, MBK announced plans to acquire around 15 percent of the world’s biggest zinc smelter, Korea Zinc, through a tender offer, joining hands with friend-turned-foe Young Poong. With the bidding price raised once, the tender offer could go up to 2.3 trillion won ($1.75 billion).

The tender offer for Korea Zinc resembles MBK’s previous attempt to grasp control of the country's largest tire-maker, Hankook Tire & Technology, last year. At the time, MBK teamed up with estranged siblings from the ownership family and launched a tender offer worth 620 billion won on the holdings company Hankook & Co. The attempt, however, fell through, as it secured fewer than half of the minimum target of shares.

MBK’s sudden strikes on management control of big-name companies here have come as a surprise for the market, as it is uncommon for local “management-friendly” private equity funds to involve themselves in such disputes. Activist funds, on the other hand, typically engage in such a hostile strategy more often.

“We do not consider ourselves as an activist fund,” MBK Partners Vice Chairman Kim Kwang-il said at a press conference on Sept. 19, asked whether MBK has transformed into an activist fund. Kim has been a key figure behind the move toward cooperation with Young Poong.

“Activist funds rack up over 5 percent stake in companies without communicating with the major shareholders. They bring up issues and launch a tender offer when the shareholders disagree. MBK, however, executes investments through communication with major shareholders,” Kim said.

The market views MBK’s attempt as a strategy to strengthen its presence, moving beyond a mere buyout-and-exit strategy.

More global private equity firms have adopted activist tactics as the lines between shareholder activist strategies and traditional private equity strategies have blurred. For instance, in recent years Kohlberg Kravis Roberts disclosed plans to push for changes in its portfolio companies, acquiring a limited stake in them.

Pursuing controversy could be a tactic to capitalize on improvement, some viewed.

“While some PEFs seek to buy thriving companies, make them more lucrative and sell them off, others also see opportunity in underperforming or controversial companies, perceiving there is more room for improvement. MBK Partners seem to have adopted the latter tactic in its recent moves,” an official from a local private equity firm said.

Though private equity houses often walk on eggshells to meet the expectations of limited partners -- often state-run funds that are more conservative in their approach -- MBK, with a vast pool of overseas limited partners, can take its own line, the market viewed.

The exact list of the limited partners has not been revealed, as MBK is private, but multinational state-run funds are known to be enlisted, such as the Canada Pension Plan Investment Board, California Public Employees' Retirement System and Abu Dhabi Investment Authority.

Yet, others also view that MBK’s recent moves could damage its reputation, limiting its deal-making capacity as a private equity house here.

“The recent moves of attacking company leaderships make it difficult for others to perceive the PEF as a financial partner,” another official from a local private equity firm said.

By Im Eun-byel(silverstar@heraldcorp.com)