Korea Zinc chair hatches plan to maintain management control

Korea Zinc Inc. Chair Choi Yun-birm said on Sunday he has a strategy for defending management control of the world’s top zinc and lead smelter from a takeover bid by MBK Partners Ltd., which is closer to winning the battle.

“The game is not over yet. I am preparing several defensive measures. I am confident I can win,” Choi told The Korea Economic Daily in an exclusive interview. “We are developing strategies to defend management control with various people while persuading shareholders to change their minds.”

The remarks came as North Asia-focused private equity firm MBK and Korea Zinc’s top shareholder Young Poong Corp. are expected to take control of the smelter after the company withdrew its 2.5 trillion won ($1.8 billion) rights issue.

The MBK coalition currently holds a 39.83% stake, while Choi and his allies were estimated to have secured 35.33%.

PERSUADE OTHER SHAREHOLDERS

Choi is persuading other shareholders such as South Korea’s National Pension Service (NPS) with a 7.83% stake as of end-June to support the current management, saying those shareholders are unlikely to back MBK and Young Poong.

“Will swing voters choose them, given the management capabilities of Young Poong and MBK?” he said. “We will convince the NPS, foreign investors and individual shareholders to vote for the management that can lead Korea Zinc well.”

Korea Zinc reported an operating profit of 150 billion won on a consolidated basis in the third quarter, while Young Poong, which also smelts non-ferrous metals such as zinc, logged a loss of 17.9 billion won, Choi said.

To sway shareholders, Choi pledged to raise dividends from the previously pledged plan of about 30% of its profits.

“We will develop additional plans to increase dividends further,” he said.

When asked if he and his allies have a plan to buy Korea Zinc stocks in the market or secure more white knights, Choi would only say, “Let’s see.”

REGRETS RIGHTS ISSUE PLAN

He expressed regret for the rights offering, which Korea Zinc had sought to secure more shares in the battle with MBK and Young Poong.

Korea Zinc on Oct. 30 said it will raise 2.5 trillion won in a rights issue in December following its share buybacks and allocate 20% of them to its employees, a move aimed at repaying debts used for its recent share buybacks in the management feud with the MBK consortium.

The company had planned to issue 3,732,650 shares at 670,000 won each, or 25% below the buyback price of 890,000 won. The new shares will represent 20% of its outstanding shares, excluding treasury stocks that it repurchased at 1.8 trillion won this month for cancellation.

The offering had been expected to allow Choi and his allies, who have a smaller stake than the MBK coalition, to secure a stake of up to 4%.

Korea Zinc dropped the plan on Nov. 13 after the move sparked protests from shareholders and prompted a regulatory probe. Investors criticized Korea Zinc for borrowing money to maintain management control and making shareholders repay the debt.

“I thought I had a 60% chance of winning even before the rights issue plan, but I went too far,” Choi said. “I sincerely regret not understanding how shareholders would feel.”

“Everything needs a smart approach and a wise approach. We could not persuade shareholders through a smart approach. I will make decisions in a smart approach that shareholders agree with.”

While the company was mired in the rights issue controversy, MBK and Young Poong increased their stake in Korea Zinc by 1.36 percentage points to 39.83% through purchases in the market. 

The management feud is expected to be wrapped up at a shareholders’ meeting scheduled for as early as this year.

Young Poong Group was founded in 1949 by Chang Byung-hee and Choi Ki-ho. The group’s two major affiliates have been run largely by their descendants. The Chang family controls Young Poong Corp. and the electronic parts units, while the Choi family manages Korea Zinc and the non-electronics units.

Their conflicts heated up as Korea Zinc, the conglomerate’s cash cow, issued new shares to Hyundai Motor Group and swapped treasury stocks with Hanwha Corp. and LG Chem Ltd.

The following is an edited transcript of The Korea Economic Daily's interview with Choi.

▶ Has the MBK alliance taken the lead?

“No. Swing voters such as institutions, foreigners and individual shareholders, who have neither supported us nor the MBK coalition, hold about a 20% stake altogether. I am confident that I can persuade them before the shareholders’ meeting.”

▶ Will the battle be over if MBK gains another 3 percentage point (stake)?

“The coalition will hold 42.83% if they buy another 3 percentage points. The feud may be over if many shareholders do not attend the meeting. But shareholders usually participate when there is an issue. The attendance rate on certain issues topped 90% at the general shareholders’ meeting in March. The rate is likely to be close to 100% at the next meeting.”

▶ How will you persuade shareholders?

“I think everybody agrees that Choi Yun-birm will lead Korea better than the MBK coalition. I will convince them to choose an executive, who can boost Korea Zinc’s corporate value over the long term.”

▶ Can you share details about how you will persuade shareholders?

“First, we will increase shareholder value. We unveiled a plan to introduce the majority of minority votes for the goal. We aim to appoint a person who represents minority shareholders to the board of directors and allow them to make decisions on certain issues. Minority shareholders will be able to speak out.”

▶ Don’t you need to revise the company’s articles of incorporation?

“It needs approval at a shareholders’ meeting. We will be able to introduce it immediately once the MBK alliance agrees with the measure.”

▶ Is Hyundai Motor Group a white knight?

“Did the leaders of the global company invest in the individual Choi Yun-birm? They invested because they saw a bright future for Korea Zinc. But they may not have actively expressed their opinions as they are likely to be in the spotlight if they support one side.”

▶ Do you mean that Hyundai is not your ally?

“Hyundai, LG and Hanwha invested in Korea Zinc’s future businesses such as secondary batteries. They will think about who will do better in those businesses between Choi and MBK. Why don’t they cast a vote at the shareholders’ meeting after getting the answer?”

▶ I understand Young Poong’s smelter may be suspended.

“Korea Zinc is very different from Young Poong in terms of its management capabilities. Young Poong's (smelter) is set to be suspended for two months as it has not had proper pollution control equipment on it for the past 70 years. So I wonder if the people (from Young Poong) could run Korea Zinc, which is much bigger than Young Poong.”

▶ Can MBK tap professional managers?

“MBK is not a god of management. The performance of Homeplus and Nepa have deteriorated since MBK took them over. I don’t know how MBK would manage Korea Zinc, which requires an understanding of smelting technology and sales.”

▶ How have you proven your management capability?

“In 2014, I was appointed to lead the loss-making Sun Metals Corp. in Australia and the company reported a record-high operating profit of $70 million. I developed new businesses (there) by aggressively introducing solar power facilities and paying electricity bills of only 10-30 won per kWh.”

▶ Can you win this battle?

“This is a fight between David and Goliath. I have been through hell for the past two months. But Korea Zinc is a company with potential as it raised more than 2 trillion won in less than a month. We will find the best way to deal with it.”

▶ Did you expect a hostile takeover bid?

“Not at all. Korea Zinc had been seeking to buy Young Poong Group advisor Chang Hyung-jin's stake at a higher price to provide a happy farewell to Chang’s family. We hoped the family would give it up without any losses, but I may have been too naïve.”

▶ Do you have plans to meet Chang or MBK?

“I have not seen them recently, but I would like to meet them at any time. But I wonder if we can agree on anything as our management philosophy and working methods are too different. Can we narrow such a difference?”

▶ Do you have any conditions for a compromise?

“I wish to give the MBK coalition an opportunity to participate in management by allowing them to appoint one or two additional outside directors. But I cannot accept their taking full control.”

▶ How will you use treasury shares?

“We have yet to make a decision on that.”

▶ How will you deal with the weakness in the secondary battery sector?

“We invested 500 billion won in a nickel smelter, the world’s largest nickel factory outside China, to produce 42,600 tons a year. Hyundai Motor Co. is a major customer. I know that the MBK coalition opposed it, but that will force Korea Zinc to lose the growth opportunities forever.”

▶ Do you have funds to invest in new businesses?

“We bought back fewer shares than expected and still have room to borrow money from financial institutions. We have enough money to invest without having to sell existing assets.”

Write to Woo-Sub Kim and Hyeon-woo Oh at duter@hankyung.com
 
Jongwoo Cheon edited this article.