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

Korea Zinc Co.’s new office in downtown Seoul greets visitors with a large bust of the current chairman’s grandfather. Conspicuously absent, however, is the friend who started the metals empire with him more than seven decades ago — and whose family is now trying to wrest control.

Author of the article:

Bloomberg News

Heesu Lee and Filipe Pacheco

Published Nov 19, 2024  •  5 minute read

Yun B. Choi Photo by Jean Chung /Photographer: Jean Chung/Bloombe

(Bloomberg) — Korea Zinc Co.’s new office in downtown Seoul greets visitors with a large bust of the current chairman’s grandfather. Conspicuously absent, however, is the friend who started the metals empire with him more than seven decades ago — and whose family is now trying to wrest control.

The fight over the world’s biggest zinc smelter has pitted Korea Zinc Chairman Yun B. Choi against its largest shareholder Young Poong Corp., controlled by the other founding family, the Changs. The rift has put two of South Korea’s wealthiest families at loggerheads.

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Succession scuffles are not uncommon among the chaebols, but few involve large buyout firms, roller-coaster share moves and the future of a major supplier of energy-transition metals. Korea Zinc’s public spat is bitter and intense even by the standards of Korea’s conglomerates.

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

The past two months have not been kind to Choi. The urbane, US-educated 49-year-old responded with a share buyback that further raised the company’s debt and was met with accusations of poor governance and questionable capital allocation. Just days after concluding the share buyback, Choi proposed a $1.8 billion share sale that sparked a selloff in the stock and prompted regulators to investigate. Choi hastily scrapped the offer and agreed to step down as the chairman of the board, eroding his ability to counter the hostile bid. 

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Choi is now scrambling to rebuild the trust of the independent shareholders who will ultimately determine the company’s and his fate.

“Our real mistake was the rights offering. We misread the market. Perhaps it was a smart move, but it was definitely not the wisest move,” he said in the interview at the company’s headquarters, adding he had “put the cart before the horse.”

Choi is betting that he can regain the trust and sympathy of his employees and shareholders, as he seeks to protect the legacy of his grandfather. 

He and his team “went out to the market, listened very carefully, heard some harsh words” — before withdrawing the share issue plan. 

Aside from Choi’s own move, Korea Zinc has announced plans for a new non-executive chairman, promised quarterly dividends and a louder voice for independent shareholders. Choi, though, is not retreating.

“Going through this ordeal, and it’s been two months, I do recommend it — if you are able to overcome it. It’s a very cleansing experience. It crystallizes what is important and what isn’t,” said Choi, who will stay on as chief executive. “It’s not over, of course. We will definitely continue to fight. I see that as a duty of my position, I owe that to my employees, I owe that to the shareholders.”

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Barbarians at the Gate

In many ways the consummate, besuited executive, Choi has not always fit neatly into the chaebol mold. Having studied in the US, he practiced law in New York for two years before joining the family business — and then worked at a smelter in Ulsan, in the country’s south, in Peru and at the company’s Australian arm before returning to Seoul. 

A fitness enthusiast, Choi is a father of two who keeps a low profile, though he is friendly with the second and third generations of other chaebol families. Some of those ties have turned into business links, with Hyundai Motor Group and LG Chem Ltd becoming shareholders of Korea Zinc, helping Choi to invest in what he calls his “green troika” — renewable energy, electric-vehicle and battery materials, and recycling. 

Support for protected technologies in Korea and the return of President-elect Donald Trump opens opportunities here, Choi said, as non-China producers like his own company come into focus.

“He will be tougher on China,” Choi said, pointing to Korea Zinc’s operations in nickel, zinc and other metals used in solar panels, turbines and batteries. “The US or Europe, if they are going out into the world and looking for nickel that is produced by a non-Chinese party, they’re going to have a very, very short list. And we’re going to be top of that list.”

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Choi’s ability to bounce back will hinge on his success in defusing accusations of poor practices. He defends his “very robust” board and the company’s performance through “very 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 by running up debt — may still require clear signs of governance improvement, analysts say.

Sanghyun Park, analyst at Clepsydra Capital in Seoul, says the timing is right. “The first step would be to genuinely make boards of directors independent from the direct influence of owner families,” Park said. “Private equity funds are leveraging this vulnerability to aggressively expand into Korea’s buyout market, and this dynamic is expected to act as a significant driver of governance reform.”

Should MBKP succeed, that would likely have repercussions that go beyond one company, for the wider group of conglomerates that continue to dominate the Korean economy.

“This time is different,” said Munseob Lee, assistant professor at the University of California San Diego and director of the Korea-Pacific Program. “Koreans could be supportive toward private equity firms, or someone who wants to buy out the company, if they have a valid vision. Or if they believe what the management has done is inappropriate. It gives current management a huge lesson.”

Choi argues management would in fact suffer under MBKP. But he says he is ready to hear about that plan and vision — and to engage. 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 Stephen Engle, Rika Yoshida, Justin Solomon and Emily Yamamoto.

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