Refer Report
Choi Yoon-beom, chairman of Korea Zinc, which is in the middle of a management rights dispute, pulled out an unprecedented counterattack card by mobilizing up to 2.7 trillion won in company debt to protect management rights against the Youngpoong and MBK Partners alliance. Chairman Choi’s family’s stake in Korea Zinc is approximately 15%. The majority shareholder intends to use a large amount of the company’s cash for his own interests. This is an unprecedented number in the domestic capital market. The impact is expected to be significant.
Korea Zinc announced on the 2nd that it will make a public purchase of approximately 3.73 million shares of Korea Zinc (18.0% stake) from the 4th to the 23rd with Bain Capital, an American private equity fund. The purchase price is 830,000 won per share, bringing the total public offer amount to 3.1 trillion won. Korea Zinc plans to directly invest 2.7 trillion won in company money to purchase 3.21 million shares of treasury stock (treasury stocks acquired by the company), and Bain Capital also plans to purchase 520,000 shares of Korea Zinc by mobilizing 430 billion won.
At a press conference held at the Grand Hyatt Seoul Hotel in Hannam-dong, Yongsan-gu, Seoul, Chairman Choi said, “Through this tender offer, we will protect the company from hostile and predatory attacks and enhance corporate value and shareholder value.” “All of them will be incinerated,” he said.
Under current law, treasury stocks acquired by a company cannot be voted on at a general shareholders’ meeting. However, the reason the board of directors of Korea Zinc, controlled by Chairman Choi, decided to buy back shares worth 2.7 trillion won was to prevent the Youngpoong-MBK alliance from securing shares in Korea Zinc.
Youngpoong and MBK are conducting a tender offer to purchase up to 14.6% of Korea Zinc’s shares at 750,000 won per share by the 4th of this month. From the perspective of existing shareholders, the incentive to respond to the tender offer is lowered as Korea Zinc’s share purchase price is more than 10% higher than the tender offer price. This means that in a situation where the Youngpoong-MBK alliance and Chairman Choi’s stake in Korea Zinc, including friendly shares, are similar at around 33% each, the alliance can prevent the alliance from gaining an upper hand in the competition for shares.
Earlier on this day, the Seoul Central District Court dismissed Youngpoong’s application for a provisional injunction to ban Korea Zinc’s stock acquisition filed against Chairman Choi Yoon-beom and other directors of Korea Zinc, saying, “The need for a ban was not sufficiently demonstrated.” This opens the way for Chairman Choi to use the stock repurchase of Korea Zinc, a company, to defend his management rights.
On this day, Chairman Choi also initiated a public offer of shares of Youngpoong Precision, which holds a 1.85% stake in Korea Zinc. Youngpoong Precision is currently conducting a tender offer at 25,000 won per share for Youngpoong and MBC joint ventures to secure a 43.4% stake, but Chairman Choi countered by saying he would buy 25.0% of the company’s shares at a higher price of 30,000 won per share. It will.
The problem is that Korea Zinc Company itself took on 2.7 trillion won worth of debt in order to purchase treasury stocks to defend Chairman Choi’s management rights. On this day, Korea Zinc announced that it would raise a total of 2.7 trillion won externally for the purpose of ‘operating funds’, including 1.7 trillion won in borrowings from financial companies and 1 trillion won in corporate bond issuance. Chairman Choi explained, “It was a difficult decision that entailed a short-term financial burden,” and “This was because we judged it to be the only way to preserve corporate value and enhance the interests of all stakeholders in the mid- to long-term.” Korea Zinc told the Hankyoreh that “about 1.5 trillion won of the 2.7 trillion won tender offer amount will be raised through conversion of surplus that can be converted into short-term cash.”
Typically, a common management technique is for companies with cash to purchase treasury stock when the stock price is low, then resell it to external parties when the stock price rises, and use it for investment in new businesses or mergers and acquisitions (M&A). However, because Korea Zinc borrowed money to cancel its own shares, its equity capital decreased and its debt increased.
The Youngpoong-MBK alliance also said, “In a management rights dispute, it is the directors’ duty of care toward the company (a good manager’s duty of care) to defend their management rights by mobilizing a huge amount of company funds to acquire treasury stocks for their own management rights rather than the interests of shareholders. and a violation of duty of loyalty,” he protested. The union announced that it had filed a request for a temporary injunction with the Seoul Central District Court to stop Korea Zinc’s tender offer of its own shares, and filed a criminal complaint against the directors who voted in favor of the tender offer of its shares at the Seoul Central District Prosecutors’ Office.
Jun-Beom Cheon, Vice Chairman of the Korea Corporate Governance Forum (attorney), said, “In order to justify the use of poison pills and other management rights defense measures in the U.S., it must be specifically demonstrated that a public buyer seeking to acquire a company’s shares will cause damage to the company and all shareholders. “It has to happen,” he said.
Reporter Park Jong-oh pjo2@hani.co.kr Reporter Nam Ji-hyun southjh@hani.co.kr
Source: Korean