Korea Zinc removes lower limit of share buyback to counter MBK's bid
Jong-Kwan Park, Ji-Eun Ha and Hyung-Kyu Kim
4 HOURS AGO
Korea Zinc Chairman Choi Yun-birm announced a share buyback plan at a press conference on Oct. 2 (Courtesy of Yonhap) Korea Zinc Inc. has removed the lower limit of its share buyback in a tender offer worth up to 3.1 trillion won ($2.4 billion), the company said on Friday, a move aimed at reducing uncertainty over its buyback plan to ward off MBK Partners’ attempt to take control of the company.
On Friday, the world's No. 1 lead and Zinc smelter kicked off its share buyback with the backing of Bain Capital, a US private equity firm, in the first tender offer carried out by a South Korean company against a takeover bid.
Korea Zinc will pay 830,000 won per share, 10.7% higher than an MBK-led consortium’s bid price of 750,000 won. It will retire all the shares it is buying back.
Korea Zinc and Bain Capital aim to buy up 18% of its outstanding shares combined until Oct. 23. Early this week, Korea Zinc had said that if its tender offer fails to attract shares amounting to 5.87% of its floating stock, it would abandon the buyback plan.
But the company changed its stance to get rid of the lower limit to allay investor concerns that Korea Zinc is capable of fulfilling the pledged share buyback and win the battle against the MBK-Young Poong Corp.'s consortium.
Korea Zinc's smelter FINANCING PLANS
On Friday, Korea Zinc unveiled its detailed financing plan. It will tap 1.5 trillion won in retained earnings to finance the stock repurchase and borrow 1.16 trillion won from banks. Bain Capital will pour 429.5 billion won into the buyback to buy a 2.5% stake.
It has opened a 1.7 trillion-won credit line at two banks, including the borrowing of 1.16 trillion won: Hana Bank and SC First Bank. They will lend the loans at a minimum 4.67% and 5.5% for floating and fixed rates, respectively, according to industry banking sources.
MBK Partners' founder and Chairman Michael ByungJoo Kim In comparison, the MBK-led group has offered to purchase at least 6.98% of the lead smelter's floating stock, a minimum amount of shares to secure the latter's management rights. Its three-week tender offer expires on Friday.
Investors cheered Korea Zinc’s Friday announcement, pushing its shares to a record high of 774,000 won at one point on Friday morning, above the MBK-Young Poong Corp’s bid price of 750,000 won.
On Wednesday, investors showed a lukewarm response to Korea Zinc’s buyback plan. They doubted about its financing capability.
The same day, its shares closed 3% higher at 713,000 won, below MBK-led group’s bid price of 750,000 won. The Korean stock market was closed on Thursday for a public holiday.
Young Poong, a non-ferrous metal smelter, is Korea Zinc's largest shareholder with a 25.4% stake.
On Friday, MBK criticized Korea Zinc's share buyback plan, saying the massive amount of stock repurchase and retirement will undermine the company's financial heath and shareholder's interest.
"The tender offer led by Chairman Choi will be carried out with 2.7 trillion won in borrowings at an interest rate of up to 7%. It will cause considerable damage to Korea Zinc and the remaining shareholders," the private equity firm said in a statement.
(Updated with Korea Zinc's financing plan and MBK statement)
Write to Jong-Kwan Park, Ji-Eun Ha and Hyung-Kyu Kim at pjk@hankyung.com