Korea Zinc Buyback to Counter Takeover Attempt

By Joyce Lee and Heekyong Yang
SEOUL (Reuters)

Korea Zinc announced on Monday that it has secured 9.85% of its shares through a $1.5 billion buyback aimed at preventing shareholders from selling stakes to major investors Young Poong and MBK.

Bain Capital, which supports Korea Zinc's current management, has also obtained a 1.41% stake, according to a regulatory filing from the world’s largest zinc smelter.

Led by the Choi family, Korea Zinc is engaged in a control struggle with the co-founding Chang family, who, along with Young Poong and MBK, made a joint initial offer in September.

The latest developments reveal that Korea Zinc management's support is still outmatched by the combined stake of MBK and Young Poong, raising expectations for a drawn-out takeover fight. Consequently, Korea Zinc shares reached record highs on Monday.

Together, MBK and Young Poong own approximately 38.5% of Korea Zinc. Prior to the buyback, the Choi family had backing from shareholders holding up to 36% of the company, including major partners like Hyundai Motor Group.

Korea Zinc reported spending 2.07 trillion won ($1.5 billion) on the buyback, which it plans to ultimately cancel, thereby enhancing shareholder value. This cancellation implies that the Choi family's stake won't expand in relation to their rival.

In a proxy fight, neither side possesses a majority stake.

Korea Zinc shares soared by 11.7% on Monday, reaching a peak of 1.4 million won, which is 57% above the buyback price of 890,000 won, and closing up 3.8% with fewer shares available due to tender offers from both factions. Shares in Young Poong also rose by 7.45%.

MBK nominated 14 new directors for Korea Zinc, which currently has 13 board members, and has called for an extraordinary shareholder meeting, as mentioned by a partner in the investment fund last week. They also proposed a new governance system aimed at separating management from the board, noting that the recent share buyback caused significant financial strain on the company.

Shareholders perceived as supportive of the Choi family, including Hyundai Motor, Hanwha Group, and LG Chem, have not publicly shared their positions yet. South Korea’s National Pension Service, which owned a 7.83% stake in Korea Zinc as of late June, is anticipated to play a pivotal role in voting but has not disclosed its current stance.

($1 = 1,384.1300 won)