(Bloomberg) -- Efforts to defend Korea Zinc Co. from a $12.5 billion takeover offer face a key test on Wednesday, as the chairman’s proposal to buy back the company’s shares at a premium comes to a close.
For months, major investors in the world’s biggest zinc smelter have been at loggerheads. The fight for control reached fever pitch last month, when top shareholder Young Poong Corp., backed by private equity firm MBK Partners Ltd, launched an unsolicited cash offer to buy control of the company.
The tender expired last week, and took the Young Poong side’s stake to more than 38%. While not a majority, MBK said the holding would be large enough to guarantee clout, and suggested it would dig in.
That left Korea Zinc Chairman Choi Yun-beom — who has roped in Bain Capital for support — to gather a larger stake with his offer to buy back up to 20% of the stock. Choi currently has the backing of about 34% shareholders, including “friendly investors,” such as Hyundai Motor Group, units of Hanwha Group, LG Chem Ltd, and commodities trader Trafigura Group.
The battle over Korea Zinc will determine the future of a player vital to Western efforts to counter Beijing’s dominance in metals production. Korea Zinc accounts for 12% of the world’s zinc produced outside of China, according to Bloomberg analysis using data from consultancy CRU Group. Zinc is used to galvanize steel and as a coating to prevent rust on solar panels and wind turbines. There is also zinc-based battery technology, an alternative to lithium options.
Even in a country where succession battles are not uncommon in family-owned conglomerates, it is also an unusually public battle between what were once two allied families — and one that brings in one of North Asia’s largest private equity firms.
Choi’s bet is that his sweetened 890,000 won-a-piece buyback offer — well above the market value of a stock that closed on Tuesday at 874,000 won — will ultimately give him the edge over the rival proposal. MBK’s twice-sweetened offer came in at 830,000 per share.
MBK, which argues its bid would improve corporate governance, has criticized Choi’s efforts to use company money to fund a buyback motivated by efforts to retain control. It has argued that the move will saddle Korea Zinc with more debt, and further deteriorating company’s finances.
South Korean courts, however, have repeatedly rejected MBK’s efforts to stop the stock purchases.
The two factions at war over Korea Zinc and its future direction are also its founders, the Choi and the Chang families. Chang’s two sons, however, ended up with a bigger share over time as they maintained most of their stake within the family.
After becoming chairman in 2022, Choi announced plans to invest heavily in clean power, electric vehicle batteries and recycling, a direction the Chang side has opposed, preferring strong dividends.
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