Korea Zinc, MBK face-off for control of zinc smelter takes new twist

The face-off between Korea Zinc Inc. and MBK Partners for control of the world's No. 1 lead and zinc smelter shows no sign of abating as the private equity firm has again sweetened its bid for the South Korean company to match the latter's new buyback offer worth up to 3.1 trillion won ($2.4 billion).

The private equity firm in a consortium with Young Poong Corp. said on Friday it has raised its tender offer price for Korea Zinc by 10.7% to 830,000 won per share and removed the lower limit of its share purchase, matching the zinc smelting firm’s share buyback terms.

The non-ferrous metal company's move is aimed at reducing uncertainty over its buyback plan to counter MBK Partners’ takeover bid as investors cast doubts on its financing capability to carry out the buyback.

On Friday, Korea Zinc 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, now the same as the MBK-led consortium’s bid price. The company 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 terms to eliminate the lower limit to allay investor concerns over whether Korea Zinc is capable of fulfilling the proposed share buyback and winning the battle against the MBK-Young Poong Corp. consortium.

Young Poong is Korea Zinc's largest shareholder with a 25.4% stake.

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 purchase 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 from Hana Bank and SC First Bank. They will lend the loans at a minimum of 4.67% and 5.5% for floating and fixed rates, respectively, according to industry banking sources.

Additionally, it will raise 1 trillion won in new bond sales to Meritz Securities Co. at an interest rate of 7%. It will also sell 400 billion won in commercial papers and set aside the proceeds from the bond issues to prepare against the MBK-Young Poong consortium raising their bid price again.

In comparison, the MBK-led group has offered to purchase at least 6.98% of the lead smelter's floating stock, the minimum stake required to secure the latter's management rights.

On Friday afternoon, the consortium between MBK and Young Poong said in a regulatory filing that it has deleted the clause in its tender offer that it would purchase at least 6.98% of the company's floating stock. Otherwise, it had planned to cancel the tender offer.

It extended the tender offer period to Oct. 14, while lifting its offer price to 830,000 won per share from 750,000 won.

Investors cheered the sweetened offers by Korea Zinc and MBK, pushing the zinc smelting company's shares to a record high of 791,000 won at one point on Friday. The stock closed up 8.84% at 776,000 won.

Until Wednesday, MBK seemed to have a better chance of winning the battle for control of Korea Zinc, considering its funding power. 

But Korea Zinc's new counterattack by removing the lower limit of its share buyback offered a twist in its battle against the MBK-led group.  

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 health and shareholder interests. 

"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%. That 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's statement)

Write to Jong-Kwan Park, Ji-Eun Ha and Hyung-Kyu Kim at pjk@hankyung.com
 

Yeonhee Kim edited this article.