MBK ups stakes for Korea Zinc to match buyback offer

A consortium of MBK Partners-Young Poong Corp. on Friday raised its tender offer price for Korea Zinc Inc. again and removed the lower limit of its share purchase to match the world’s top lead and zinc smelter’s share buyback proposal worth up to 3.1 trillion won ($2.4 billion), escalating their competition to take control of the smelting company.

The MBK-led group said in a regulatory filing that it will purchase Korea Zinc shares at 830,000 won per share, 10.7% higher than its recently-revised bid price of 750,000 won and 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.

The 6.98% is a minimum number of shares required to secure the latter's management rights.

The new bid price and the lower limit removal for its share purchase match Korea Zinc’s proposal announced early on the day.

The MBK-Young Poong consortium had offered to purchase between 6.98% and 14.61% of the lead smelter's outstanding stock.

MBK announced the sweetened bid on the last day of its original tender offer and extended the period to Oct. 14. In comparison, Korea Zinc’s share buyback expires on Oct. 23.

Its revised tender offer followed a spike in Korea Zinc’s share price surpassing MBK’s bid price on Friday.

Investors welcomed the zinc smelting company’s decision to remove the lower limit of its share buyback, a move that would reduce uncertainty over its buyback.

But MBK decried Korea Zinc's buyback plan as a breach of trust since its Chairman Choi is tapping a substantial amount of its retained earnings for the proposed buyback, which will take place at a price above its estimated fair value.

“To counter Chairman Choi Yun-birm's illegal tender offer for buybacks and to correct Korea Zinc's corporate governance, we have revised the price and conditions for our tender offer again,” MBK said.

“We will purchase all shares offered (during our tender offer) and correct Korea Zinc's damaged corporate governance together with Young Poong, the largest shareholder (in Korea Zinc),” it added.

In late September, the MBK-Young Poong consortium lifted their tender offer price to 750,000 won from 660,000 won. 

Despite its tender offer matching Korea Zinc’s buyback price, MBK is confident it has strong chances of winning the battle because of tax issues for shareholders.

If they sell their shares back to Korea Zinc, they need to pay taxes between 15.4% and 49.5% of the gains because they are categorized as dividend income, according to MBK.

But if they accept MBK's tender offer, their profits will be subject to securities transaction and transfer income taxes which are lower than those for dividend income, the private equity house claimed.

Write to Ji-Eun Ha at hazzys@hankyung.com
Yeonhee Kim edited this article