November 22, 2024

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Korea Zinc Chairman Choi Yun-beom speaks during a press conference held at the Grand Hyatt Seoul in Yongsan-gu, Seoul, on Wednesday. (Yonhap)

Korea Zinc, the world's largest zinc smelter, is launching a tender offer to repurchase shares valued at up to 3.1 trillion won ($2.25 billion) to defend its position in the ongoing management dispute with Young Poong, its largest shareholder, and private equity firm MBK Partners.

Korea Zinc Chairman Choi Yun-beom announced Wednesday during a press conference in Seoul that the company’s board has resolved to initiate this tender offer for treasury shares.

Choi said the tender offer aims to "shield the company from hostile and predatory attacks" by the alliance of Young Poong and MBK Partners, asserting that the private equity firm would eventually sell the zinc smelter to a Chinese company.

According to Choi, Korea Zinc plans to acquire up to 15.5 percent of the company —3,209,009 shares — at 830,000 won per share, with a total purchase value estimated at around 2.66 trillion won.

Additionally, US-based private equity fund Bain Capital is joining forces with Korea Zinc as a co-purchaser in the tender offer.

Bain Capital plans to invest approximately 430 billion won in the tender offer to acquire 517,582 shares, representing 2.5 percent of Korea Zinc's total shares.

In total, Korea Zinc, along with Bain Capital, aims to acquire around 18 percent of the company’s total shares, with the total capital invested in the offer estimated at approximately 3.1 trillion won. The tender offer will run from Thursday to Oct. 23, and all acquired treasury shares will be canceled.

The price offered by Korea Zinc is about 10 percent higher than the 750,000 won per share bid made earlier by Young Poong and MBK Partners, who seek to acquire up to 14.6 percent of Korea Zinc in their joint tender offer. By launching a tender offer at a higher price than its rivals, Korea Zinc is poised to secure a dominant position in the management feud.

Currently, Young Poong holds a 33.99 percent stake in Korea Zinc, while Choi and his family control a combined 33.13 percent.

Korea Zinc's tender offer follows a decision by a local court on Wednesday that dismissed the injunction jointly filed by Young Poong and MBK Partners to block Korea Zinc from repurchasing its shares during their tender offer period, set to run until Thursday.

The coalition contended that it is illegal for Korea Zinc and Choi, as related parties of Young Poong, to repurchase treasury shares during their tender offer period. The Capital Markets Act prohibits a tender offeror and its related parties from acquiring shares of the target company through means other than the tender offer during the bidding period.

However, the court determined that Korea Zinc does not qualify as a related party to Young Poong, as there was no explicit agreement regarding joint ownership of shares, a key factor in determining related party status under the law.

Despite the court's decision, Young Poong and MBK filed another injunction Wednesday to halt Korea Zinc's share buyback. According to the companies, this latest injunction aims to prevent the board from acting against shareholders' interests by allowing the company to repurchase shares at an excessively high price.

While Korea Zinc's market price typically hovers around 500,000 won per share, it has surged to approximately 700,000 won amid the ongoing dispute. Treasury shares cannot be disposed of until six months after acquisition, by which time prices are expected to revert to their usual levels.

"Acquiring treasury shares at a price above their actual value not only violates the director's duty of care and loyalty but also constitutes a breach of fiduciary duty," the Young Poong-MBK coalition argued.

Amid rising tensions, Korea Zinc shares surged to an intraday high of 737,000 won on Wednesday, up 8 percent from the day’s opening price, before closing at 713,000 won.

By Choi Ji-won (jwc@heraldcorp.com)