MBK's fight for Korea Zinc control drags on after court ruling

The battle for control of Korea Zinc Inc. between an MBK Partners-led alliance and the zinc smelter’s Chairman Choi Yun-birm is evolving into a never-ending saga after a Seoul court partially sided with MBK.

On Friday, the Seoul Central District Court ruled in favor of the MBK-Young Poong Corp. consortium that sought to block Choi’s move to weaken the alliance's voting rights by creating a circular ownership structure.

If the court had rejected the MBK's request, the MBK-Young Poong alliance’s voting stake would have shrunk to about half the size of Chairman Choi and allies' combined holdings.

The court decision, however, did not represent a complete victory for the private equity firm.

It turned down MBK's demand to invalidate cumulative voting, which won a majority support at Korea Zinc's January extraordinary shareholder meeting.

Choi pushed ahead with the adoption of a new voting system to fight against the MBK-led group, which has secured about half of the zinc smelter. Cumulative voting may enable Choi to appoint new board directors on his side and retain control even with fewer votes than the MBK-Young Poong coalition.

Of the 13 members on Korea Zinc’s board, 12 were appointed by Choi.

Following the court verdict, the two sides' battle over control of the world’s largest lead and zinc smelter is expected to intensify. They will likely face off in a proxy fight at a general meeting of shareholders later this month.

COURT'S REJECTION OF CIRCULAR OWNERSHIP

Just before the January extraordinary shareholder meeting, Choi transferred his 10.3% stake to SMC, a unit of Korea Zinc's subsidiary, creating a circular shareholding structure with Young Poong -- the largest shareholder of Korea Zinc -- at the top of the ownership chain.

Under the South Korean Commercial Law, voting rights are restricted for companies involved in circular shareholding structures. Based on this rule, Korea Zinc’s management tried to restrict the voting rights of Young Poong’s 25.4% stake in Korea Zinc.

Without the backing from Young Poong, MBK, with a 15.57% stake in Korea Zinc, would be unable to block Korea Zinc’s appointment of new board directors on its side.

The Seoul district court said the circular ownership for the zinc smelter company violated the country's commercial law.

MBK's fight for Korea Zinc could take more than five years to reach a Supreme Court ruling, putting pressure on the North Asia-focused buyout firm to meet redemption requests from its limited partners.

The court ruling deals another blow to MBK Partners, which filed for court protection for its wholly owned unit Homeplus Co., South Korea’s second-largest hypermarket chain, earlier this week. The largest buyout firm in North Asia has yet to exit from Homeplus under cumulative losses.

In 2024, operating profit at Korea Zinc. leapt 11.5% to 736.1 billion won ($510 million) from the previous year, with sales up 24.5% to 12.08 trillion won thanks to metal price rises.

However, net profit plummeted 59.6% on-year to 215.5 billion won, which the company blamed on foreign exchange-related losses.

By Jin-Won Kim and Sang Hoon Sung

Jin1@hankyung.com


Yeonhee Kim edited this article.