[비즈한국] Korea Zinc010130 has completed all legal procedures for a large-scale third-party allotted paid-in capital increase to fund the construction of a smelter in Tennessee, USA. With the court repeatedly validating the new share issuance, it is assessed that the management defense strategy led by Korea Zinc Chairman Choi Yun-beom has passed a critical turning point. On the other hand, the Young Poong000670 and MBK Partners alliance, which has been seeking a takeover, faces increased pressure after failing to block the capital increase and being ordered by the court to submit previously private contracts related to management rights.
Injunction dismissed and registration complete… Korea Zinc's capital increase succeeds
The third-party allotted paid-in capital increase for the U.S. joint venture, considered a watershed moment in the Korea Zinc management dispute, appears to be settling into a victory for Korea Zinc. Previously, the Young Poong-MBK alliance filed an injunction to stop the new share issuance, claiming it was a move to defend management rights, but the court dismissed this on the 24th of last month. The court sided with Chairman Choi Yun-beom, recognizing the business necessity of the U.S. smelter investment.
Even after the injunction was dismissed, Young Poong attempted to block the registration by challenging the method of calculating the issue price based on exchange rate fluctuations. They claimed the issue price may have violated the Capital Markets Act by falling below the legal minimum. However, the court finalized the registration of Korea Zinc’s capital increase on the 29th of last month, effectively rejecting Young Poong’s arguments. Consequently, the procedural controversy surrounding the validity of the new share issuance has effectively come to an end.
The capital increase, worth approximately 2.8 trillion won, was conducted for the 'Crucible Joint Venture (JV)' in which the U.S. government is participating. Korea Zinc emphasizes that this is a strategic investment to strengthen the core mineral supply chain in North America and secure local smelting capabilities.
Chairman Choi Yun-beom stated in a shareholder letter on the 6th, "The U.S. integrated smelter will further strengthen Korea Zinc's strategic position in the global core mineral market while serving as a stable foundation to support long-term profitability and growth."
The dollar funds raised through the capital increase will be directly injected into the local U.S. project without being converted into Korean won. Korea Zinc plans to invest additional company funds into its subsidiary, 'Crucible Metals LLC,' which will then pursue the smelter construction by receiving various grants from the U.S. government and other entities.
The Young Poong-MBK alliance criticizes the capital increase as a means of defending management rights that dilutes shareholder equity. In response, Korea Zinc counters that it is an investment that will contribute to shareholder value in the mid-to-long term, such as by securing approximately $210 million in subsidies under the U.S. Department of Commerce's CHIPS Act. Following the completion of the registration, the Crucible JV is officially listed as a shareholder holding a 10% stake in Korea Zinc.
The approximately 2.2 million new shares issued via the capital increase are scheduled to be officially listed on the 9th. Changes in the management dispute landscape are expected following this listing. Chairman Choi Yun-beom's friendly stake is projected to expand to around 45.5%, including the 10% stake held by the joint venture. This level exceeds the voting rights of the Young Poong-MBK alliance, leading to assessments that Chairman Choi has secured an advantageous position ahead of the regular general shareholders' meeting in March.
Court orders disclosure of Young Poong-MBK 'call option'
As the capital increase issue is being settled in Korea Zinc's favor, the court has made another significant ruling. On the 30th of last month, the Seoul Central District Court accepted a request from KZ Precision, a Korea Zinc affiliate, and ordered Young Poong and MBK to submit all documents related to the 'management cooperation agreement' signed during their pursuit of a Korea Zinc takeover.
The management cooperation agreement was signed by Young Poong and MBK Partners during their M&A attempt, and it is known to contain a 'call option' clause that allows MBK to purchase Korea Zinc shares held by Young Poong at a specific price. The court determined that the agreement could not be strictly classified as a trade secret and that it was desirable for it to be subject to shareholder oversight, thus ordering its disclosure. The contract is expected to be revealed early this month.
Until now, the exercise price, the core of the call option agreement, has not been specifically disclosed through public filings. Critics have pointed out that if Young Poong agreed to transfer Korea Zinc shares to MBK at a price lower than the market value, it could constitute a breach of trust, infringing upon shareholder interests. KZ Precision is a shareholder holding a portion of Young Poong's equity.
In a press release, KZ Precision stated, "The doubts held by the market and shareholders regarding at what price and in what manner Young Poong intended to transfer its most important asset, Korea Zinc shares, to MBK Partners must be clearly investigated. If the suspicions raised in the media are proven true, major decision-makers including Advisor Jang Hyung-jin and the management will find it difficult to avoid shareholder derivative lawsuits and liability for damages."