The power struggle between private equity firm MBK Partners and Korea Zinc over the company’s management rights is escalating into a fierce battle, with both sides preparing to deploy more than 3 trillion won ($2.2 billion) to gain control of the company.
MBK Partners, which has teamed up with Korea Zinc’s largest shareholder, Young Poong Group, has secured around 33.1% of the company’s shares so far, according to sources familiar with the matter on Sept. 23. Korea Zinc’s management has gathered around 34% with support from Hyundai Motor Company, Hanhwa, and LG Chem.
The remaining 23% of shares, excluding those held by the National Pension Fund, which has yet to take a stance and non-voting treasury shares, will determine the outcome of the power struggle. Both sides are racing to secure as many shares as possible, each preparing to commit over 3 trillion won to win the fight.
Analysts say that Korea Zinc, South Korea’s leading non-ferrous metal producer seeking to maintain control, needs to invest around 1 trillion won to increase supportive shares by six percentage points. With 6% of institutional and foreign investors already in favor of the current management, adding another six percentage points would prevent MBK from achieving a majority. MBK Partners, on the other side, could gain a controlling interest once it secures up to 14.6% of the shares through the tender offer launched on Sept. 13.
But both parties are at risk of falling victim to the “winner’s curse” regardless of the outcome of the dispute. Korea Zinc and MBK Partners have likely raised capital through high-interest loans, meaning that the winner could be left dealing with heavy financial commitments, leaving less room for future investments in the company.
When MBK Partners launched the tender offer earlier this month, it initially offered to buy shares at 660,000 won each. But as of Sept. 23, Korea Zinc’s stock price had climbed to 723,000 won. Retail, foreign, and institutional investors are more likely to respond to the tender offer if the purchase price exceeds the current stock price. If the stock price does not fall, MBK Partners may raise the purchase price in two days, prompting Korea Zinc to initiate a counter-tender offer as a defensive measure.
Korea Zinc is working behind the scenes to raise roughly 1 trillion won to fund the counter-tender offer and secure the additional 6% of shares needed to fortify its defense. Korea Investment & Securities, SoftBank, Bain Capital, and Sumitomo Corporation are rumored to be potential allies. MBK Partners has already raised around 2 trillion won through short-term borrowing.
Industry insiders are concerned that the heated battle for control will likely burden both parties in the long run. Unlike MBK, which can offer investors the prospect of a management buyout, Korea Zinc will have to present other incentives to maintain support from its financial backers.
MBK is also under considerable pressure. Of the 2 trillion won it has raised, about 1.5 trillion won is due for repayment next June at a minimum interest rate of 5.7%. By the time the loan matures in nine months, the interest will amount to around 63 billion won. If MBK raises its tender offer price above 660,000 won, the financing costs will increase, making it more challenging to recover its investment.
“Regardless of who wins, the various costs incurred during the stake war could ultimately be reflected in Korea Zinc’s future performance, where the company’s value is negatively impacted for drawing on cash that could have been used for future investments,” said an industry insider.
