Trick Play or Straight Strategy... What Will Be Choi Yoon-beom's Choice at Korea Zinc on the 23rd?
by Cho Seongpill
Published 22 Jan.2025 17:50(KST)
Director Appointments Take Center Stage: Majority Vote System in Effect
Convincing Minority Shareholders Key to Blocking MBK Alliance's Board Entry
Court Ruling May Be Used to Postpone Director Appointments
An extraordinary general meeting (EGM) that will determine the outcome of the dispute over the management rights of Korea Zinc will be held on the 23rd. Earlier, the court blocked the introduction of the cumulative voting system, casting a 'red light' on Chairman Choi Yoon-beom and the current management team of Korea Zinc, who have been working behind the scenes to win the hearts of minority shareholders and institutional investors. However, the dominant analysis is that a last-minute turnaround will not be easy, as the voting rights stake of the Youngpoong-MBK Partners (hereinafter MBK alliance) exceeds the majority.
Direct Approach: Unfavorable but Possible
According to industry sources on the 22nd, Korea Zinc will hold an extraordinary general meeting at 9 a.m. the next day at the Grand Hyatt Seoul. The agenda for the EGM includes ▲ introduction of the cumulative voting system ▲ setting a cap on the number of directors ▲ appointment of directors ▲ stock split of issued shares ▲ introduction of an executive officer system ▲ protection for minority shareholders ▲ change of dividend record date ▲ introduction of quarterly dividends, among others.
The highlight of this meeting’s agenda is undoubtedly the appointment of directors. Previously, the MBK alliance proposed 14 director candidates, and if all of them are appointed, the MBK alliance will secure a majority on the board. Currently, Korea Zinc’s board consists of 12 directors, of whom only one (Jang Hyung-jin, advisor to Youngpoong) is from the MBK alliance. For Chairman Choi and Korea Zinc’s side, it is a situation where they must block the MBK alliance’s candidates from entering the board and get at least one of their own seven recommended candidates approved to defend management rights.
However, conditions are unfavorable. Earlier, the court blocked the introduction of the cumulative voting system, which Chairman Choi had gambled on, so the appointment of directors at this EGM will proceed under the existing majority vote system. Korea Zinc, with a voting rights stake of 39.16%, is about 7 percentage points behind the MBK alliance’s 46.72%, making the structure disadvantageous. The industry expects that the MBK alliance, which only needs about an additional 3.3 percentage points to secure a majority, will easily secure a majority on the board.
Korea Zinc acknowledges the unfavorable situation but hopes that if it can rally support from the National Pension Service, foreign institutional investors, and minority shareholders, a last-minute turnaround is possible. A Korea Zinc official said, "We have done our best to block the hostile takeover attempt by the speculative private equity fund MBK and the deficit-ridden smelting company Youngpoong. As far as we know, casting votes from the National Pension Service and others are leaning in our favor, so there is sufficient possibility for a last-minute turnaround."
Irregular Tactics: Temporary Relief but Big Aftershocks
Some suggest that Korea Zinc might discard the director appointment agenda at this EGM. The basis is the court’s decision. The Seoul Central District Court Civil Division 50 (Chief Presiding Judge Kim Sang-hoon) sided with the MBK alliance’s claim that "directors should not be appointed by cumulative voting at the EGM," but dismissed all other requests. Among the dismissed requests was one from the MBK alliance stating that "regardless of the introduction of the cumulative voting system and the setting of a cap on the number of directors, the director appointment agenda should not be discarded."
The chairman of the Korea Zinc shareholders’ meeting is Park Ki-duk, the CEO according to the articles of incorporation. Generally, the chairman acts as a simple facilitator, but holds considerable authority. If the chairman interprets the court’s dismissal as meaning "it is permissible to discard the director appointment agenda," the agenda might not be tabled. In that case, the meeting is likely to end in disruption.
Moreover, at this meeting, the agenda to introduce the cumulative voting system will be tabled before the director appointment agenda. If approved, the cumulative voting system will be applied to director appointments from the next shareholders’ meeting onward. From Korea Zinc’s perspective, they could reintroduce the director appointment agenda at the next meeting where the cumulative voting system, favorable to them, is in place, to block the MBK alliance’s entry into the board. Korea Zinc has already stated after the court decision that "we plan to actively promote the introduction of the cumulative voting system in line with the original intent of protecting minority shareholders and enhancing their rights."
However, this scenario is considered unrealistic as it may temporarily block the MBK alliance’s board entry but could trigger further legal disputes and increase confusion. The MBK alliance said, "We are concerned about how Chairman Choi’s side, which is losing in voting rights and cannot use the cumulative voting method for director appointments, will try to obstruct the EGM. We will do our best to ensure that the meeting proceeds fairly and justly in accordance with the court’s ruling."
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