The Meeting of Shareholders in Korea Zinc Takes a Dramatic turn
Mr. Choi, his family and the conglomerate Young Poong took steps to invalidate votes by Korea Zinc, the company’s largest shareholder. The conglomerate was trying to remove him from the company. The Chois currently manage Korea Zinc day to day and the Changs control Young Poong.
The feud has become a test of the resilience of South Korea’s powerful family-run conglomerates known as chaebols in the face of Western-style corporate governance.
It has the added element of a deep-pocketed private equity firm, Seoul-based MBK Partners, looking to profit from upending the status quo in South Korea. And Korea Zinc carries a great deal of geopolitical significance, as one of the few major suppliers of metals critical to global supply chains without ties to China.
The dispute officially started in September when Young Poong, which runs its own zinc smelting business as well as a bookstore chain and electronics component makers, joined forces with MBK to acquire enough shares to take control of Korea Zinc’s board of directors.
But after the two sides jostled to lock up as much of Korea Zinc’s shares as possible, the consortium of Young Poong and MBK appeared to be in a stronger position heading into the meeting on Thursday.
They had secured roughly 47 percent of Korea Zinc’s voting shares versus about 40 percent for the Choi family and its allies. A South Korean court sided against the Choi family and its allies on Tuesday by blocking a proposal that would have changed how votes for board members would be tallied during the upcoming meeting. On Wednesday, Korea Zinc put up a last-minute roadblock. It announced that Sun Metals Corp., an Australian subsidiary, bought a 10 percent stake in Young Poong from the Choi family and another subsidiary.
Korea Zinc said this transaction created a so-called circular ownership structure because one of its subsidiaries owned more than 10 percent of Young Poong and Young Poong owned more than 10 percent of Korea Zinc. Citing South Korean law, Korea Zinc claimed Young Poong’s voting rights were invalidated under that structure.
In a statement on Wednesday, the Choi family and the Korea Zinc subsidiary said the sale of Young Poong shares was “the best course of action for the South Korean economy” as well as the right choice for Korea Zinc’s long-term interests.
Korea Zinc said the transaction had “legal validity.”
Young Poong and MBK said in a joint statement that the scheme was “merely a stopgap and an illegal act to avoid losing in today’s shareholder vote.”
“We will pursue all necessary measures to nullify the illegal outcomes of the meeting and restore proper governance through lawful procedures,” they said in the statement. MBK spokesman said they would take the case to court. He said Korea Zinc could be fined if found to have broken the law. Cho said that any case against Korea Zinc would depend on whether Sun Metals was deemed to be a South Korean firm because the law only applies to domestic companies. Young Poong could have a strong argument to regain voting rights if it is deemed a foreign company. The labor union of Korea Zinc threatened to strike if Young Poong or MBK were to gain control. When shareholders gathered they were faced with a protest by the labor union. Korea Zinc stated that the start of the meeting had been delayed by five hours due to delays in verifying the voters.
When it finally started, Korea Zinc confirmed Young Poong’s vote would be voided. A Young Poong representative said he felt “robbed,” according to a local media report.
Without Young Poong’s vote, shareholders approved Korea Zinc management’s proposals. Korea Zinc announced that the changes to the way votes are counted for board directors will be implemented at its next shareholders meeting. Shareholders also agreed with management to cap the size of the Board at 19 members. This means that Mr. Choi’s board allies would still retain majority.
