Hanwha, LG to support Korea Zinc in battle against MBK

South Korea’s Hanwha Group and LG Group are likely to help Korea Zinc Inc. fight against a takeover by MBK Partners Ltd. as the private equity firm’s acquisition is expected to jeopardize the conglomerates’ partnership with the global leading zinc and lead smelter for future businesses such as battery recycling.

Korea Zinc Chair Choi Yun-birm reportedly met Hanwha Group Vice Chairman Kim Dong-kwan, the heir apparent of the South Korean energy-to-defense conglomerate, over the Chuseok holiday last week to discuss countermeasures against a combined tender offer by MBK and the smelter’s top shareholder Young Poong Group, industry sources said on Sunday. Hanwha Group holds a 7.75% stake in Korea Zinc as of end-June.

Choi was also known to have secured support from LG Group, of which its chemicals unit LG Chem Ltd. has a 1.89% stake in Korea Zinc. Hankook & Company Co. with a 0.75% stake has already said it would back Choi.

“Choi succeeded in collecting white knights over the Chuseok holidays as key shareholders did not really like MBK’s criticism over investments in new businesses led by the chairman,” said one of the sources.

Hyundai Motor Group, which has a 5.05% stake in the smelter, reportedly shared the view although the world’s third-largest automaker has yet to officially unveil its stance, according to sources.

Choi is expected to secure a friendly stake of 33.99% in total, higher than 33.13% of MBK and Young Poong, which are seeking Korea Zinc’s control through a takeover bid of up to 2 trillion won ($1.5 billion).

OVERSEAS BUSINESSES

Korea Zinc’s key shareholders are worried about potential problems faced by the smelter’s overseas businesses caused by the management feud against MBK and Young Poong.

The North Asia-focused private equity firm said Korea Zinc’s acquisition of Igneo Holdings LLC was a failure. The smelter said the US-based electric waste recycling company played an important role in procuring battery raw materials, however.

Igneo extracts materials for electric vehicle cells such as nickel, cobalt and manganese from electronic wastes.

LG Chem, the parent of the world’s third-largest EV battery maker, swapped its treasury shares with Korea Zinc to cooperate in the cell raw materials business in November 2022 to meet US federal requirements for EV incentives. The two companies established a joint precursor producer in South Korea.

Korea Zinc is expanding its cooperation with Hanwha in Australia. The non-ferrous metal producer has been trying to increase its renewable energy business in the country where it operates a smelter.

The company has unveiled a plan to invest $7.5 billion in photovoltaics, wind power, green hydrogen and battery sectors by 2030, on which Hanwha is also focusing.

Hyundai Motor Group agreed with Korea Zinc to jointly invest in mines to secure battery materials such as nickel.

CONCERNS OVER POTENTIAL DISRUPTIONS

“Korea Zinc’s partnerships with Hanwha, LG Chem and Hyundai Motor mostly concentrated in overseas businesses,” said another source. “They are worried about possible disruptions in long-term investments of hundreds of millions of dollars.”

Despite the support from those conglomerates, Korea Zinc still needs money to counter MBK and Young Poong as they plan to increase their combined stake to more than 40%.

Korea Investment & Securities Co., which has a 0.8% stake in the smelter, is set to raise some 2 trillion won with private equity firms at home and abroad to help Choi with Korea Zinc's own tender offer, The Korea Economic Daily exclusively reported last week.

“We successfully persuaded local and foreign investors over Chuseok,” said a Korea Zinc official, referring to the Sept. 16-19 holiday last week in South Korea. “We aim to keep unveiling measures to increase stakes until Oct. 4, the end of (MBK’s) tender offer.”

Write to Woo-Sub Kim and Ik-Hwan Kim at duter@hankyung.com
 
Jongwoo Cheon edited this article.