Tycoon Who Bungled Korea Zinc’s Share Sale Fights for Control

Article content

(Bloomberg) — Korea Zinc Corporation’s new office in downtown Seoul greets visitors with a large bust of the current president’s grandfather. But conspicuously absent is the friend with whom he started the metal empire more than seven decades ago — and whose family is now trying to wrest control.

The conflict over the world’s largest zinc smelter has pitted the chairman of the Korean Zinc Corporation, Yoon Bi Choi, against its largest shareholder, Yeongbong, which is controlled by the other founding family, the Chang family. This rift led to a dispute between two of South Korea’s richest families.

Article content

Succession quarrels are not uncommon among corporate giants, but a few involve big buyouts, volatile stock moves, and the future of a major supplier of energy-converting minerals. The public dispute between the Korean zinc company is bitter and severe even by the standards of Korean conglomerates.

It all started in mid-September when Yong Bong, backed by private equity firm MBK Partners Ltd., launched a surprise hostile bid for Korea Zinc. Choi told Bloomberg TV in an interview that he was going out to dinner with a friend when he first heard about the unwanted approach. The suitors timed their move for maximum impact and just days before South Korea’s Thanksgiving holiday, leaving Choe’s camp with limited time to prepare an effective response.

The past two months have not been kind to Choi. The gentlemanly, US-educated 49-year-old responded with a stock buyback that increased the company’s debt and was met with accusations of mismanagement and questionable capital allocation. Just days after the stock buyback was completed, Choi proposed selling $1.8 billion worth of shares, triggering a widespread sell-off in shares and prompting regulators to investigate. Choi quickly rescinded the offer and agreed to step down as chairman of the board, eroding his ability to counter the hostile bid.

Article content

Article content

Choi is now striving to rebuild the trust of the independent shareholders who will ultimately determine the fate of the company and his own.

“Our real mistake was offering the rights. We misread the market. It may have been a smart move, but it certainly wasn’t the wisest move,” he said in the interview at company headquarters, adding that he had “put the cart before the horse.”

Choi is betting that he can regain the trust and sympathy of his employees and shareholders, while seeking to protect his grandfather’s legacy.

He and his team “went out to the market, listened very carefully, and heard some tough words” — before withdrawing the stock issuance plan.

Aside from Choi’s move, Korea Zinc announced plans to appoint a new non-executive chairman, promising quarterly dividends and a greater voice for independent shareholders. But Choi is not backing down.

“I went through this ordeal, and it’s been a couple of months, I recommend it — if you’re able to get through it. It’s a very cathartic experience. It crystallizes what’s important and what’s not important,” said Choi, who will remain as CEO. naturally. We will definitely keep fighting. I see it as my duty, and I owe it to my employees, and I owe it to the shareholders.

Article content

Barbarians at the gate

In many ways, Choi, the slick, suit-wearing CEO, didn’t always fit the mold of the wealthy. Having studied in the US, he practiced law in New York for two years before joining the family business – then working in a smelter in Ulsan, in the south of the country, in Peru and in the company’s Australian arm before returning to Seoul.

A fitness enthusiast, Choi is a father of two and keeps a low profile, although he is friendly with second and third generations of other wealthy families. Some of these relationships have turned into business ties, with Hyundai Motor Group and LG Chem Ltd becoming shareholders in Korea Zinc, helping Choi invest in what he calls the “green troika” – renewable energy, electric vehicles, battery materials and recycling. .

Choi said support for protected technologies in Korea and the return of President-elect Donald Trump are opening up opportunities here, as the focus is on non-Chinese producers like his company.

“It will be tougher with China,” Choi said, pointing to Korea Zinc Corporation’s operations in nickel, zinc and other metals used in solar panels, turbines and batteries. “If the United States or Europe went out into the world looking for nickel produced by a non-Chinese entity, they would have a very, very short list. We would be at the top of that list.”

Article content

Choi’s ability to recover will depend on his success in defusing accusations of malpractice. He defends his “extremely strong” board and the company’s performance under “very difficult circumstances.” For Choi, holding on to his position — and changing the minds of those who accuse him of clinging to power with company cash and piling on debt — may still require clear signs of improved governance, analysts say.

The timing is right, says Sanghyun Park, an analyst at Klepsydra Capital in Seoul. “The first step would be to make boards truly independent from the direct influence of the owner families,” Park said. “Private equity funds are taking advantage of this vulnerability to aggressively expand into Korea’s buyout market, and this dynamic is expected to serve as an important driver of governance reform.”

If MBKP succeeds, it will likely have ramifications beyond one company, to the broader array of conglomerates that still dominate the Korean economy.

“This time is different,” said Moonseob Lee, an assistant professor at the University of California San Diego and director of the Korea-Pacific Program. “Koreans can be supportive of private equity firms, or anyone who wants to buy the company, if they have the right vision. Or if they think what the administration did is inappropriate. It gives the current administration a big lesson.”

In fact, Choi says, the administration will suffer under MBKP. But he says he is ready to hear and participate in this plan and vision. MBKP declined to comment.

“I’m willing to talk,” he said. “I’m not interested in being a dictator, or any of the other things they claim.”

—With assistance from Steven Engel, Rika Yoshida, Justin Solomon, and Emily Yamamoto.

Article content