Korea Zinc Chair Choi Yoon-beam leaves  after announcing the firm's decision to scrap its paid-in capital increase plan in a press conference held in Seoul on Nov. 13. (Newsis)
Korea Zinc Chair Choi Yoon-beam leaves after announcing the firm's decision to scrap its paid-in capital increase plan in a press conference held in Seoul on Nov. 13. (Newsis)

After a monthslong ownership battle between Korea Zinc’s current management and the MBK Partners-Young Poong alliance, shareholders of the world’s largest zinc smelter are expected to decide the company’s fate this week.

At an extraordinary general shareholders meeting on Thursday, Korea Zinc Chair Choi Yoon-beam and his proxy fight rival, the MBK-Young Poong coalition, will seek to add their respective nominees to Korea Zinc’s board.

The two parties’ competition for a stake in Korea Zinc, which started late September last year, has evolved into a proxy contest as both sides failed to obtain a majority stake.

What’s the latest development?

On Wednesday, a Seoul court accepted an injunction filed by MBK Partners, which upped the chances that the private equity consortium would gain control of the company.

The Seoul Central District Court granted an injunction prohibiting the use of cumulative voting for director appointments at Korea Zinc’s upcoming shareholders meeting.

The introduction of the cumulative voting system has been regarded as the Korea Zinc chairman’s last resort to defend his management rights from MBK’s takeover bid, as it would boost the voting power of his side.

What's on the agenda?

Whether the MBK faction can get enough votes to dominate Korea Zinc’s boardroom, packed with directors from the firm’s current management, will be a key agenda.

With the court’s ruling, board director candidates will be picked through statutory voting. This is advantageous to the MBK-Young Poong coalition as it holds a larger stake in Korea Zinc than Choi.

Statutory voting is a standard practice in most corporations, where each shareholder gets one vote per share for each board candidate. Cumulative voting entitles a voter to cast multiple votes, which can also be lumped on a specific candidate.

The MBK alliance holds a 40.97 percent stake in Korea Zinc, while Choi’s side owns 34.24 percent. Based on shares with voting rights, they have 46.7 percent stake and 39.16 percent, respectively.

Currently, Korea Zinc's board of directors consists of 12 members, including 11 from the firm's management side and one from its proxy fight rival. In addition to the existing board of directors, Choi seeks to add seven new members while MBK plans to appoint 14.

As the chairman’s cumulative voting plan was thwarted, the likelihood of adding all 14 directors recommended by the MBK-Young Poong alliance, which has already secured nearly half of the voting rights, is increased.

But some market experts believe that MBK could face difficulties in securing a majority in the boardroom. Third-party shareholders who hold voting rights, such as the National Pension Service, approved only some of the directors recommended by MBK and Young Poong, while global proxy advisory firms like ISS opposed four members and Glass Lewis opposed all of them.

In response, MBK shared that three pension funds -- the California Public Employees Retirement System, the California State Teachers' Retirement System and Norges Bank Investment Management -- have released voting results regarding the agenda of Korea Zinc's extraordinary shareholders' meeting. All three voted in favor of board director nominees from MBK. Korea’s National Pension Service supported an equal number of nominations from each side: three from Korea Zinc’s management and three from the MBK coalition.

“In addition to the four pension funds that officially announced the voting results, it was reported that 16 of the 19 domestic and foreign institutional investors that indirectly announced the voting results only voted in favor of MBK and Young Poong's director candidates,” an MBK official said.

This captured chart from Google shows Korea Zinc's share price over the previous six months.
This captured chart from Google shows Korea Zinc's share price over the previous six months.

What are the chances that Korea Zinc will win?

The MBK alliance, which could secure a majority stake if it gains additional support of about 3.3 percentage points, has a greater chance of winning this management dispute.

However, there is still a chance that Korea Zinc's chairman secures a majority of the board of directors if current management musters the combined support of the National Pension Service, overseas institutional investors, and minority shareholders, since the voting shares of MBK known to date, fall short of the majority.

“Based on positive assessments from domestic and foreign voting advisors, minority shareholders and local communities, we will put considerable effort into preventing hostile takeover and merger attempts by speculative private equity fund MBK and loss-making smelter company Young Poong,” Korea Zinc said in a statement.

By Park Han-na (hnpark@heraldcorp.com)