MBK, Young Poong seek $1.5 bn hostile bid for Korea Zinc

MBK Partners Ltd., the North Asia-focused private equity firm, is set to take over Korea Zinc Inc. through an up to 2 trillion won ($1.5 billion) hostile bid in a partnership with its largest shareholder Young Poong Group amid the intensifying feud between the conglomerate’s founding families.

MBK and Young Poong Corp., the group’s controlling company, said on Friday in a regulatory filing that they plan to buy a 7-14.6% stake in Korea Zinc, the world’s largest zinc and lead smelter, through a tender offer at 660,000 won per share, an 18.7% premium to the company’s last closing price.

The tender offer is estimated to cost 953.7 billion won-2 trillion won, the largest-ever takeover bid in South Korea.

That pushed Korea Zinc’s share price by as much as 24.1% to a record high of 690,000 won in the country’s main stock exchange.

The acquisition, if successful, is expected to allow MBK, Young Poong Corp., the group’s advisor Chang Hyung-jin and his family members to increase their combined stakes to as high as 47.73% from the current 33.13%. Their holdings are predicted to grow to as much as 52% if shares without voting rights such as treasury stocks are excluded.

Young Poong Group signed a deal with call options that allows MBK to acquire Korea Zinc in the future, investment industry sources said.

TO TAKE CONTROL FROM CURRENT KOREA ZINC CHAIR

MBK and Young Poong Group aim to take control of Korea Zinc from its current Chair Choi Yun-birm, who has a 1.84% stake in the company.

The private equity giant also plans to buy a 43.43% stake in Young Poong Precision Corp., which has a 1.85% stake in Korea Zinc, through a separate tender offer at 20,000 won per share. The industrial pump and chemical plant valve maker is currently controlled by Choi’s family.

Young Poong Precision’s stocks surged by the country’s daily limit of 30% to 12,180 won.

Young Poong Group was founded by Chang Byung-hee and Choi Ki-ho in 1949. The group’s two major affiliates have been largely run by their descendants. The Chang family controls Young Poong Corp. and electronic parts units, while the Choi family manages Korea Zinc and non-electronics units.

Their conflicts heated up as Korea Zinc, the conglomerate’s cash cow, issued new shares to Hyundai Motor Group and swapped treasury stocks with Hanwha Corp. and LG Chem Ltd.

The smelter accelerated its efforts to terminate its decades-long business relations with Young Poong Group by dominating the boardroom of group affiliate Sorin Corp in June.

LEGAL STEPS

The group and MBK are poised to take legal steps to keep Korea Zinc Chair Choi from preparing counteractions, according to investment banking industry sources.

Young Poong Corp., which has a 25.4% stake in Korea Zinc, plans to ask a Seoul district court to ban the smelter from buying treasury shares, the sources told The Korea Economic Daily. Such purchases may violate the Capital Markets Act if Korea Zinc buys its own shares when its top shareholder launches a tender offer, according to Young Poong Corp.

Korea Zinc Chair Choi is expected to take countermeasures.

“We won’t just wait and see,” said a Korea Zinc official. “We plan to discuss how to respond while closely watching the situation.”

Choi is likely to seek white knights with deep pockets, given his close relationships with owners of major local companies, as he needs some 2 trillion won to fend off MBK and Young Poong Group’s tender offer.

MBK is set to use its 8 trillion won buyout fund for the tender offer, taking a lesson from its failure to take over Hankook & Company Co., the parent of the country’s top tire maker Hankook Tire & Technology Co., with its special situations fund of 1 trillion won last December.

BETTER CORPORATE GOVERNANCE

MBK has sought to take over major local companies with poor corporate governance since the failure.

“We will consider additional investment opportunities for companies whose corporate value has been damaged by governance issues like Hankook & Company,” Jay H. Bu, a partner at MBK, told The Korea Economic Daily after the takeover bid collapsed.

The private equity firm, which targeted Korea Zinc, has been in talks with Young Poong Group to improve the company’s corporate governance.

MBK established overall deal structures and strategies, while Young Poong Group agreed with the buyout firm’s plans, investment banking industry sources said.

The group agreed not to take back Korea Zinc’s management control from MBK even after the tender offer succeeds.

Korea Zinc Chair Choi and the coalition of MBK and Young Poong Group are expected to seek support from other shareholders.

MBK and the group are likely to stress Choi was allegedly involved in the manipulation of stock prices of SM Entertainment Co., while Choi is predicted to argue that Korea Zinc’s top shareholder joined hands with a private equity firm to take over management control, according to industry sources.

Write to Jun-Ho Cha and Jong-Kwan Park at chacha@hankyung.com
 
Jongwoo Cheon edited this article.