MBK not to raise Korea Zinc tender offer price after regulator warning

MBK Partners will not raise its tender offer prices again for Korea Zinc Inc. and its affiliate Young Poong Precision Corp. after hiking them twice to match Korea Zinc’s share buyback offer, a move that industry watchers said would ease their price competition but bodes ill for a lengthy battle.

Its decision not to revise its bid price higher than 830,000 won per share, or up to 3.1 trillion won ($2.4 billion) in total, seems to reflect MBK’s confidence that its counterpart Korea Zinc. in a consortium with Bain Capital, may be unable to bump up its buyback price to match MBK’s tender offer.

“Regardless of whether Korea Zinc may raise its tender offer prices for its own shares and for Young Poong Precision, we will not further increase our tender offer prices,” a consortium between MBK and Young Poong Corp. said in a statement on Wednesday.

It added that price competition above the current tender offers could burden the financial structures of Korea Zinc and Young Poong Precision and therefore reduce their corporate and shareholder value.

The MBK and Young Poong Corp. consortium will leave its tender offer price for Young Poong Precision intact at 30,000 won per share.

REGULATORY INTERVENTION

The announcement came a day after Lee Bok-hyun, governor of the Financial Supervisory Service, warned that excessive price competition in tender offers for Korea Zinc will ultimately undermine shareholder value.

The same day, the regulatory body launched a probe into whether their tender offers would lead to market price manipulation.

Last week, the MBK consortium raised its tender offer price for Korea Zinc to 830,000 won per share from 750,000 won, two days after Korea Zinc announced its share buyback at 830,000 won apiece. Compared with its original bid price of 660,000 won, MBK has increased its offer price by 26%.

It also removed the lower limit of its public purchase as Korea Zinc did to reduce uncertainty over its share purchases.

BREACH OF TRUST

The MBK-led group seems to be in a more advantageous position than Korea Zinc in the high-stakes battle.

It argued the non-ferrous company’s buyback above its fair value and retiring the stock, to be financed by heavy borrowings, would constitute a breach of trust by its current management, led by Chairman Choi Yun-birm.

Thus, it expects Korea Zinc shareholders would accept its tender offer that expires on Oct. 14, more than a week before Korea Zinc’s buyback, which ends on Oct. 23.

PROXY BATTLE?

If the MBK-Young Poong consortium fails to secure shares enough to seize control of Korea Zinc, it could convene an extraordinary shareholder meeting to launch a proxy battle against the company, according to industry observers.

Young Poong is Korea Zinc's largest shareholder with a 25.4% stake. Including its friendly stakeholders, Young Poong controls 33.1% of the smelting company.

Shares of Korea Zinc have rallied since the MBK-led consortium launched its tender offer. But its stock price has remained below the tender offer price of 830,000 won.

On Thursday, it gained 1.68 to close at its daily high of 789,000 won, compared with Tuesday’s closing price. South Korea's stock market was closed on Wednesday due to a public holiday.

Thursday’s close is slightly off its record high of 791,000 won touched last week.

Shares of Young Poong Precision, an industrial pump and chemical plant valve maker, plummeted 7.54% to end at 31,250 won, but remain above the tender offer and buyback price.

It holds a casting vote with a 1.85% stake in Korea Zinc in the management battle for the latter.

Write to Jong-Kwan Park, Ji-Eun Park and Byung-Hwa Ryu at pjk@hankyung.com
 


Yeonhee Kim edited this article.