U.S. Government Emerges as Kingmaker in Korea Zinc Management Battle

[Korea Financial Times, Gwak Horyung] Korea Zinc is set for another clash between the Young Poong-MBK alliance and Chairman Choi Yun-beom at the March regular shareholders' meeting over control of the company. With the U.S. government emerging as a major shareholder, making it difficult for either side to secure management rights independently, Young Poong-MBK has put forward aggressive shareholder proposals in an all-out effort to win shareholder support.

Battle for Board Restructuring Control Continues This Year

Korea Zinc's board consists of 19 members. Of these, four directors were nominated by the largest shareholder, the Young Poong-MBK alliance. Fifteen are personnel aligned with management under Chairman Choi Yun-beom. However, four of the 15 were appointed at last year's extraordinary shareholders' meeting with restricted voting rights for the opposing side, and their duties have been suspended after a court ruled this unlawful. In reality, the structure can be viewed as 11 (Chairman Choi) versus 4 (Young Poong-MBK).

Six directors' terms expire in March: five from Chairman Choi's side and one from Young Poong-MBK. These include Chairman Choi Yun-beom and CEO Chung Tae-woong, as well as outside directors Hwang Deok-nam, Kim Do-hyun, and Lee Min-ho. From Young Poong-MBK, the term of Jang Hyung-jin, Young Poong advisor serving as a non-executive director, is set to expire.
A proxy battle between both sides is expected at next month's regular shareholders' meeting as each attempts to place as many members as possible on the board.

Young Poong-MBK announced on the 12th that they recently nominated five new director candidates through a shareholder proposal. They proposed Park Byung-wook, Young Poong outside director, and Choi Yeon-seok, MBK Partner, as non-executive director candidates, and Oh Young, Choi Byung-il, and Lee Sun-sook as outside director candidates. Young Poong-MBK stated, "These individuals possess balanced expertise in industry, finance and management experience, and independence," adding, "This is not about one shareholder group monopolizing the board, but to enable diverse shareholders to participate in board governance."

Chairman Choi's side is also expected to convene a board meeting soon to propose agenda items for this year's shareholders' meeting, including director appointments.

U.S. Government as 'White Knight' Narrows the Gap

Initially, it appeared only a matter of time before Young Poong-MBK would gain control of Korea Zinc. The plan was to secure at least four additional directors at this year's meeting based on their shareholding advantage, then achieve a majority at next year's meeting.

However, a variable emerged in December of last year. Korea Zinc decided on a KRW 2.85 trillion third-party paid-in capital increase for Crucible JV, a joint venture involving the U.S. government, to construct a smelter in Tennessee, bringing both sides' shareholdings to near parity.

Crucible JV, effectively controlled by the U.S. government, disclosed that it secured a 10.6% stake in Korea Zinc. As a cooperative partner in the management dispute, it is highly likely to vote in favor of Chairman Choi's side. In this case, Chairman Choi's side, including existing friendly shares, is estimated to have secured approximately 40% of shares. Meanwhile, Young Poong-MBK's stake is estimated at approximately 42% following dilution from the capital increase.


Under the cumulative voting system that will be used at Korea Zinc's shareholders' meeting, it is extremely difficult for Young Poong-MBK to independently secure a majority of the six seats. Additionally, votes from the National Pension Service and other minority shareholders are likely to be divided. The National Pension Service, which currently holds approximately 4.5% of Korea Zinc shares, appeared to maintain "neutrality" by voting evenly on both sides' proposals last year, but in reality is assessed to have exercised voting rights favorably for maintaining Chairman Choi's management control. The corporate rehabilitation proceedings of Homeplus, where MBK is the largest shareholder, likely had an influence.

Young Poong-MBK: "Start with Structural Governance Improvements"

Young Poong-MBK has now adopted a strategy of strengthening its presence as a shareholder at this meeting. Through the shareholder proposal, Young Poong-MBK stated, "This is not about short-term management disputes or personnel changes, but about normalizing corporate value through structural governance improvements."
First, Young Poong-MBK proposed to formalize 'directors' fiduciary duty to shareholders' in Korea Zinc's articles of incorporation. This would directly reflect in the articles the shareholder protection principle that the government codified through the first Commercial Act revision last year.

They also proposed specifying in the articles the principle that the board must protect shareholder interests and treat all shareholders fairly when issuing new shares.

They revived the executive officer system that was rejected last year. This system separates executive officers who lead business operations from the board that oversees them. It is a governance structure mainly applied to companies acquired by private equity funds, with strengthening board control as its core.

They also proposed amending the articles so that the board chairman, not the CEO, chairs shareholders' meetings to ensure fairness. This appears to consider how Korea Zinc President Park Ki-duk, who served as temporary chairman at last year's meeting, led the voting rights restrictions.

Additionally, Young Poong-MBK included proposals to enhance shareholder value, such as ▲a 1-to-10 stock split ▲transfer to voluntary reserves to secure dividend resources.

Gwak Horyung (horr@fntimes.com)