Alliance to hold smelter accountable for share buyback through main lawsuit
By Jun Ji-hye
Private equity firm MBK Partners and Young Poong, which teamed up in a bid to gain management control over Korea Zinc, expressed regret on Monday over a Seoul court’s decision to dismiss their second injunction request aimed at halting the zinc smelting firm’s treasury stock buyback.
The latest dismissal by the Seoul Central District Court followed a similar case that was rejected on Oct. 2.
The alliance stated that it will continue to contest the matter until the end by filing a main lawsuit to hold the current management of the world’s largest zinc smelter fully accountable for the share buyback, which it claims causes irreversible and significant damage to the company and amounts to a breach of fiduciary duty.
MBK said the share buyback, which amounts to 2.7 trillion won ($1.9 billion), is being financed through a significant amount of debt and will harm the smelter’s financial structure over the long term.
“The court ruled that, given the nature of this injunction as a preemptive prohibition, it was not clearly proven that Korea Zinc’s share buyback constituted a breach of fiduciary duty. Moreover, since all the repurchased shares are to be canceled, the court stated it cannot definitively conclude that this constitutes a breach,” an MBK official said.
“MBK Partners and Young Poong respect the court’s decision on the injunction. However, we plan to hold Korea Zinc’s current management fully accountable for the share buyback through a main lawsuit, including claims for damages and charges of breach of fiduciary duty.”
In the ongoing ownership battle, MBK joined forces with Young Poong, which is run by the family of the co-founder of Korea Zinc. The private equity firm launched its tender offer on Sept. 13, aiming to become the smelting firm’s largest shareholder and oust Chairman Choi Yoon-beom, the grandson of the other co-founder.
The coalition secured a 5.34 percent stake in Korea Zinc through the tender offer, which was finalized on Oct. 14. This added to their existing 33.13 percent stake, bringing their total share ownership to 38.47 percent. Through this, the alliance has secured nearly a majority of voting rights at the next shareholders’ meeting.
Choi and his allies currently hold around 34 percent of the shares. Choi’s side is conducting a separate tender offer to purchase company shares, which will run through Wednesday, in order to retain control.
MBK claimed that the share buyback, intended only to secure Choi’s position, will result in damage to both the company and its shareholders.
“MBK Partners and Young Poong, as the largest shareholders of Korea Zinc, will leverage our clear voting rights majority and collaborate with the remaining shareholders to restore Korea Zinc’s broken governance,” the MBK official said. “We will make every effort to recover the smelter’s corporate value and shareholder value.”
The MBK-Young Poong alliance is reportedly planning to convene an extraordinary shareholders’ meeting soon, with the aim of gaining control of the board and strengthening its position within Korea Zinc.
The smelting firm’s articles of incorporation do not limit the number of directors, and there are currently six internal directors at the company. The plan is to introduce at least five new directors to the board, alongside the existing director, Young Poong adviser Chang Hyung-jin, in order to take control of the board.
Regarding the date of the extraordinary shareholders’ meeting, the MBK official said, “We will clarify our position after observing the results of Korea Zinc’s share buyback.”
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