Korea Zinc ownership battle expected to escalate into contest over voting rights

Kim Kwang-il, right, a partner at MBK Partners, speaks during a press conference at Lotte Hotel Seoul, Sept. 19. Yonhap

Korea Zinc, led by Chairman Choi Yun-beom, concluded its tender offer for a treasury stock buyback on Wednesday to counter the alliance between private equity firm MBK Partners and Young Poong regarding the smelter's management rights dispute.

As MBK's tender offer, which aimed to make it the largest shareholder in the zinc smelter and oust Choi, was completed on Oct. 14, the tender offers from both sides, which lasted for about a month, have now all concluded.

However, the ownership battle for the world's largest zinc smelter appears likely to persist in the long term, as neither side has secured a decisive majority of shares to overpower the other, preventing either from gaining a clear advantage.

As a result, competition between the two sides is expected to intensify in order to gain even a slight edge in the voting rights share, starting from the extraordinary shareholders' meeting, which could be held within this year, up to the general shareholders' meeting, scheduled for March next year.

The MBK-Young Poong alliance secured 5.34 percent of shares in its tender offer, increasing its total stake to 38.47 percent.

Shares held by Choi and his allies, including Bain Capital, a U.S.-based private equity firm that is set to acquire the 2.5 percent, are expected to total about 36 percent.

As neither side has achieved a majority share and the difference in their holdings is minimal, both are expected to compete for on-market purchases of the remaining shares.

In particular, from Korea Zinc's perspective, the treasury shares acquired through its tender offer are planned to be fully canceled, meaning they will not contribute to securing voting rights. Therefore, on-market purchasing could be the fastest way to obtain voting rights.

Park Ki-deok, co-CEO of Korea Zinc, speaks at a press conference at Koreana Hotel in Seoul, Tuesday. Joint Press Corps

When asked about the plan during a press conference on Tuesday, Park Ki-deok, the co-CEO of the zinc smelting firm, kept the strategy under wraps, saying, "It is difficult to share any immediate plans."

If both sides enter the shareholders' meeting without securing a majority stake, the National Pension Service (NPS), which holds 7.83 percent of the shares in the smelter, is likely to play a decisive role.

Some believe the NPS is likely to support Choi's side, as it has voted in favor of 92.5 percent of the proposals put forth at Korea Zinc's shareholder meetings over the past five years, reflecting confidence in the current management.

Others say there is also a possibility that the NPS may choose to remain neutral, since its purpose for holding shares in the zinc smelter is "simple investment."

In explaining its position on the issue, NPS Chairman Kim Tae-hyun said, "The agency must make its decision from the perspective of enhancing long-term returns," during a National Assembly audit on Friday.