By Joyce Lee and Heekyong Yang
SEOUL (Reuters) – Korea Zinc said on Monday it has secured 9.85% of the company’s shares in a $1.5 billion buyback it launched to stop shareholders from selling their shares to top investor Young Poong and private- equity firm MBK.
Bain Capital, which backs Korea Zinc’s current leaders, has separately acquired a 1.41% stake in the company, the world’s largest zinc smelter said in a regulatory filing.
Run by the Choi family, Korea Zinc is locked in a bitter battle for control of the $18 billion zinc empire with co-founding Chang family, whose conglomerate Young Poong made an initial joint bid with MBK in September.
The latest transactions show that the total support that Korea Zinc’s management has acquired so far is less than the stake of MBK and Young Poong. That raised investor expectations for a protracted takeover battle, pushing Korea Zinc shares to record highs on Monday.
MBK and Young Poong together own approximately 38.5% of Korea Zinc.
Before the buyback, Korea Zinc’s Choi family had the support of shareholders who owned up to 36% of the company, including strategic partners such as Hyundai Motor (OTC:) Group, analysts said.
Korea Zinc said on Monday it had spent 2.07 trillion won ($1.5 billion) on the buyback and would eventually cancel all its newly acquired shares to boost shareholder value.
Cancellation of the shares means that Chois’ stake will not increase against its rival.
Neither side has a majority stake in the event of a proxy fight.
Shares in Korea Zinc rose as much as 11.7% to 1.4 million won on Monday, 57% above the buyback price of 890,000 won, before ending the session up 3.8% at a record level as the number for trading available shares has shrunk due to bids from both sides.
Korea Exchange warned in a filing late Monday that if such sharp increases in its stock price continue and meet certain criteria, it may halt trading of Korea Zinc shares.
Shares in Young Poong closed 7.45% higher.
MBK on Monday nominated 14 new directors for the company, which currently has 13 board members, and called on Korea Zinc to hold an extraordinary shareholders’ meeting, as reported to Reuters last week by a partner in the fund.
The fund also said it would propose a new system to separate management from the board in a bid to improve governance, with Korea Zinc’s latest share buyback having dealt a serious financial blow to the company.
Several shareholders widely seen as sympathetic to the Chois, such as Hyundai Motor, Hanwha Group and LG Chem, have yet to make their views public.
South Korea’s National Pension Service, the world’s third-largest pension fund, which held a 7.83% stake in Korea Zinc at the end of June, is expected to be a key deciding vote. It has not yet announced its position.
($1 = 1,384.1300 won)
