Korea Zinc faces multiple legal, regulatory challenges in fight against MBK

Korea Zinc Inc. Chairman Choi Yun-birm appears to have kept his grip on the world’s largest zinc smelter after successfully fending off an MBK Partner-led takeover bid in a series of bouts, but his victory has come at a cost, with multiple legal challenges ahead.

During Korea Zinc’s general shareholders’ meeting last Friday, Choi’s camp secured an 11-to-4 advantage on the board membership, gaining the upper hand in its battle over management control.

At the meeting, shareholders also passed an amendment to the company’s corporate charter that caps the number of the board’s members at 19, which would effectively block an attempt by the alliance of North Asia-focused private equity firm MBK and Young Poong Corp. to control the board.

The latest general meeting results offer some relief to Chairman Choi, who has been in a tug of war with the MBK-led alliance since last September for control of Korea Zinc.   

But the fight is far from over as Choi is set to face a slew of legal challenges and regulatory and antitrust bodies’ scrutiny over his and his allies’ actions in their battle against the MBK-led takeover bid, experts said.

FAR FROM OVER 

MBK Partners is pursuing legal action to invalidate the key shareholder resolutions.

A day before the general meeting, MBK immediately appealed the Seoul Central District Court’s ruling that effectively banned Young Poong from casting its 25.42 percent vote.

If an appeal court overturns the lower court’s decision, the MBK alliance could nullify the new shareholder resolutions, meaning MBK could reverse the board’s composition. The higher court will announce its decision within the second quarter.

Chairman Choi also faces a litany of criminal and civil lawsuits filed by MBK and other shareholders, alleging Choi of corporate misconduct, with total damages sought exceeding 1 trillion won ($698 million).  

Central to the dispute is Korea Zinc’s 2 trillion won treasury share buyback program, which, critics argue, was a maneuver to consolidate Choi’s influence rather than create shareholder value, causing damage to Korea Zinc’s corporate value.

The zinc smelter’s 2.5 trillion won rights offering aimed at repaying debts used for its massive share buybacks also caught the attention of the Financial Supervisory Service, which has requested that prosecutors investigate it on a fast track.

Facing the allegation of unfair trading practices, the company later dropped the new share sale plan.  

The country’s antitrust watchdog, the Fair Trade Commission, is also probing Korea Zinc’s circular ownership structure for potential violations of the related regulation.

For now, Choi remains in command.

But considering that the MBK-Young Poong alliance has a larger stake of 40.97% than the Choi camp with 34%, the latter’s control over the company through a circular ownership structure could crumble at any time, said analysts.

With multiple legal challenges awaiting, long, bumpy roads lie ahead for Choi and his backers, said an official from the IB industry.

Write to Jong-Kwan Park at pjk@hankyung.com

Sookyung Seo edited this article.