Ex-Goldman Banker Turned PE Billionaire Takes On Korea’s Chaebol

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(Bloomberg) — In his 2020 bestseller, the lead character of billionaire dealmaker Michael Byungju Kim is a young banker who finds himself entangled in the dealings of South Korea’s richest families.

Now it seems that fact follows fiction.

Last month, Kim’s private equity firm MBK Partners Ltd entered into one of the toughest corporate battles in modern Korean history, a conflict that pitted the founding families behind the Korean zinc heavyweight against each other. The two sides are vying for control of the world’s largest producer of the refined metal, a key player in global efforts to loosen China’s grip on supplies of materials vital to the energy transition.

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It is a bold move by Kim, a Korean-born, US-educated financier, and a rare one. Although private equity firms’ involvement in the country’s economy has grown significantly over the past two decades, a few players have taken over the powerful family-run conglomerates known as chaebols, which have been written off as too chaotic and unlikely to make gains.

It’s also a big financial bet. MBKP and its partner Young Poong Corp., Korea Zinc’s largest shareholder, spent about $660 million to buy shares tendered by shareholders during the takeover bid, increasing their combined stake to more than 38%. However, shares of the Korean Zinc company have since risen nearly 86% above the discounted offer of 830,000 won per share, meaning further attempts to consolidate holdings will come at a steep cost.

The stock closed Tuesday at 1,543,000 won, valuing the company at approximately 32 trillion won, or $23 billion. That’s about 49 times what earnings analysts expect to make this fiscal year — a figure more familiar to tech stars than their counterparts in heavy industry.

No less important is that the conflict may continue for years. The group on the other side of the fight for control — led by Korea Zinc Chairman Choi Yeon-beom and backed by private equity firm Bain Capital — owns more than 35% of the company after a share buyback offer. The company’s rising market value suggests that investors are betting on a long battle that could see both sides vying for larger stakes.

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MBKP is ready to take a position on Korea Zinc’s board of directors, with a focus on improving corporate governance, according to the buyout firm. It wants to concentrate management in the hands of company executives, with major shareholders exercising their influence only through the board of directors. On Monday, it called for an extraordinary general assembly to present its proposals.

Korea Zinc dismissed MBKP’s ambitions to improve company management as “ridiculous.” In response to a request for comment on MBKP’s plan, the company said the bidder was “nothing more than a private equity firm looking for deals to make a profit.”

“MBK’s ultimate goal is to make money, no one can deny that,” said Park Joo-joon, president of Leaders Index, a corporate research firm in Seoul. “Addressing the issue of corporate mismanagement is its biggest weapon in this fight, because it allows the company to justify its actions and gain support from shareholders.”

Barbarians at the Chaebol Gate

Korea’s sprawling conglomerates have helped transform the country into an economic powerhouse and one of the world’s most important exporters. Decades later, they still play a huge role in the country.

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But subsequent generations – once or twice removed from parents who built fortunes with the help of military dictator Park Chung-hee from the 1960s onwards – often faced financial pressures or were caught up in succession squabbles, leading to complex institutional structures and severe collapses. Valuation discounts. At the same time, questionable governance practices and poor treatment of minority shareholders are becoming harder to hide as scrutiny increases.

“This kind of move could be a game-changer in terms of restructuring power dynamics in Korea’s corporate governance landscape,” said Sanjeon Park, an analyst at Klepsydra Capital. “In my view, Michael’s ultimate goal is to break into the Korean market for aggressive M&A – untapped but full of potential – by dismantling the system centered around small family conglomerates.”

Kim, 61, is not a new critic of the regime.

The billionaire behind one of North Asia’s biggest buyout shops is certainly no stranger. Kim married Park Kyung-ah, the daughter of the late Korean Prime Minister Park Tae-jun, who built Posco Holdings into one of the world’s largest steelmakers from scratch.

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His net worth is estimated at $9.2 billion, according to the Bloomberg Billionaires Index, and MBKP manages more than $30 billion. In 2022, the company sold approximately 13% of its shares to Dyal Capital Partners for approximately $1 billion.

“Kim is not against all major Korean companies. Remember, Yeongbong Group, which MBK cooperates with, is itself a small-sized company,” said Douglas Kim, an analyst at research consultancy Douglas Kim. “It chose Korea Zinc because it could… “She believes it is undervalued, and with improved corporate governance, it may open up to greater value in the long term.”

However, his novel “Sacrifices”, which is scheduled to be made into a film, does not indicate much sympathy for Korea’s dominant families.

In a 2022 interview with Best of Korea magazine, a publication aimed at the Korean diaspora, Kim described writing the book after wanting to “come out against the greed I saw rampant on Wall Street and the corruption among family conglomerates in Korea – ‘Inside Baseball’ is about the world of business.”

An MBKP spokesman said the book, a work of fiction, did not reflect the company’s position. He added that Korea Zinc was an isolated investment and did not reflect an investment philosophy.

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Goldman Apprenticeships

Poor corporate governance has long haunted Korean conglomerates, and is also a problem that successive governments have failed to solve. In an investor letter earlier this year, Kim had already spoken about Korea’s depressed valuations.

“Korea remains cheap. Historically, Korean companies have traded at a K discount,” MBKP’s Kim wrote. That extends to private markets as well, he said. “Our investments in this market have been executed at an average discount of 25% compared to global comparisons. Korea is the value market in Asia.

Of course, not all of Kim’s bets over the past two decades have paid off. Shortly after MBKP closed a $6.1 billion deal to buy Tesco Plc’s South Korean operations in 2015, it faced the wrath of unionized workers over potential job losses. Nearly ten years later, that holding is still on MBKP’s books.

There are also cautionary tales from other financial hackers venturing into Korea – including Paul Singer’s Elliott Management, which has clashed with South Korea’s largest listed company, Samsung Group.

Fortunately for MBKP, Kim has a strong reputation for design. An accidental investment banker who started with Goldman Sachs before venturing into private equity, he became Carlyle Group’s top dealmaker in Asia before deciding to strike out on his own.

At Carlisle, his colleagues nicknamed him “Captain Ahab,” after the whaler in Melville’s “Moby-Dick,” a testament to his determination.

“The chaebol heirs are all watching this dispute closely because many of them are at risk of ownership battles,” said Park Joo Joon of Leaders Index. “If MBK wins, they know that fights like this can spread like wildfire.”

– With the help of Yukyung Lee.

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