Korea Zinc, MBK face proxy war for zinc smelter

Korea Zinc Inc.'s face-off with an MBK Partners-led consortium over control of the world’s largest zinc smelter looks set to escalate into a lengthy proxy fight after the two sides failed to secure a majority in tender offers.

In a regulatory filing on Monday, Korea Zinc said it had bought back shares equivalent to a 11.26% stake, including a 1.41% stake bought by Bain Capital, in the market over the past three weeks. The 2.1 trillion won ($1.5 billion) repurchase falls short of its target of 20%.

Korea Zinc teamed up with the US private equity firm to counter a takeover bid by a consortium between North Asia-focused buyout firm MBK and Young Poong Corp., its largest shareholder with a 25.4% stake.

Given that companies are not allowed to exercise shareholder rights for treasury stocks, their repurchase increased the stake with voting rights, held by Korea Zinc Chairman Choi Yun-birm, stakeholders, Bain Capital and those that support its current management, to 35.45% from 33.99%.

That is more than 3 percentage points less than the 38.47% stake secured by the MBK-Young Poong coalition after completing their tender offer earlier this month. MBK tendered the zinc smelter's shares at 830,000 won apiece, 7.3% below Korea Zinc's offer of 890,000 won.

TREASURY STOCK CANCELLATION

After Korea Zinc cancels the treasury stocks it bought back, as promised, shares held by Korea Zinc’s Choi and his allies, including Hyundai Motor Co., will represent a 41.5% stake. That compares with the 45% controlled by the MBK-Young Poong consortium and their allies.

Amid the intense duel, the MBK-led group is said to convene an extraordinary shareholder meeting. It will strive to win over institutional investors such as the National Pension Service (NPS), holding about a 4% stake in Korea Zinc, to secure management rights.

But analysts said neither of the MBK-led group and the Korea Zinc-Bain Capital consortium is likely to seize more than a 50% stake in Korea Zinc in the market due to its share price surging far above their bids and reduced free float. 

Its share price soared to as high as 1,359,000 won on Monday morning, off its record-high 1,470,000 won notched on Friday.

Its free float is about 14%, including the NPS’ 4%.

If the NPS backs the Korea Zinc-Bain Capital consortium in the proxy contest, the lead smelter will gain the upper hand over the MBK-Young Poong coalition. But that may not ensure its victory.  

The MBK-Young Poong consortium breathed a sigh of relief after the Korea Zinc-Bain Capital counterpart failed to hit their buyback target.

"The results confirmed that a majority of its shareholders did not support Chairman Choi Yun-birm's buyback offers with the aim of maintaining his management rights, which incurred financial losses on the company," it said in a statement.

If the MBK-led group ultimately seizes control of Korea Zinc, it would mark its first success in a hostile takeover of a domestic company. 

Write to Sang-Hoon Sung at uphoon@hankyung.com

Yeonhee Kim edited this article