Korea Zinc ups share buyback price, volume to counter MBK

Korea Zinc Inc. said on Friday it will buy back more shares at a higher price than originally planned to counter North Asia-focused private equity firm MBK Partners Ltd., which is seen as having the upper hand in the battle for control of the world’s largest lead and zinc smelter.

The company also raised its tender offer price for its affiliate Young Poong Precision Corp., which holds a casting vote in the management dispute.

Korea Zinc said in a regulatory filing that it plans to buy back up to 3.6 million shares, 17.5% of its total outstanding stocks, for 3.2 trillion won ($2.4 billion), or 890,000 won apiece. The company had planned to buy back 2.6 million shares, 15.5% of the total, for 2.7 trillion won, or 830,000 won per stock.

The increase is set to allow Korea Zinc and Bain Capital, which joined the company’s buyback program as a financial investor, to secure a 20% stake. The US private equity firm planned to buy a 2.5% stake in the smelter.

Korea Zinc Chair Choi Yun-birm and his family members have ramped up their tender offer price for Young Poong Precision to 35,000 won from the initial 30,000 won apiece.

The industrial pump and chemical plant valve maker controlled by Choi can make a casting vote in the management feud against MBK and Young Poong Corp given its 1.85% stake in Korea Zinc.

Korea Zinc’s shares ended up 0.6% at 794,000 won on South Korea’s main stock market, outperforming a 0.1% dip on the benchmark Kospi. The stocks had fallen in the early afternoon after hitting a record high of 801,000 won in the wake of the higher buyback price.

Young Poong Precision lost 6.6% to close at 29,200 won after sliding to 28,300 won, the lowest since Oct. 2.

The plans came two days after MBK pledged not to raise its tender offer prices again for Korea Zinc and Young Poong Precision after hiking them twice to 830,000 won per share and 30,000 won apiece, respectively, to match Korea Zinc’s share buyback offer.

MBK MAINTAINS ADVANTAGE

MBK is expected to maintain its advantageous position despite Korea Zinc’s raised price, industry sources said.

The private equity firm and Young Poong Corp. are scheduled to conclude their tender offer to secure up to 14.6% in Korea Zinc on Oct. 14, while the smelter plans to complete its share buyback on Oct. 23.

Investors can sell a portion of their shares to MBK’s consortium first and offload the rest to Korea Zinc later.

Shareholders may have to pay a dividend income tax of 15.4% when they sell their stocks to Korea Zinc. If their financial investment income exceeds 20 million won a year, they are required to pay a tax of as much as 49.5% of their total financial investment income, according to the country’s tax rules. Foreign financial institutions have to pay corporate tax of 10-22.5% also if dividend income tax is applied.

On the other hand, shareholders need to pay only 0.35% of securities transaction tax and 22% of the transaction profits as capital gains tax if they sell their shares to MBK and Young Poong Corp. Foreign institutional investors do not even need to pay capital gains tax.

Korea Zinc’s share buyback may collapse if a South Korean court accepts the MBK-led consortium’s request to block Korea Zinc from buying back shares.

MBK and Young Poong Corp. are expected to take control of the smelter once they secure a stake of 5% or more as they scrapped the minimum limit of its public purchase.

If the consortium seizes control of the smelter, it is predicted to then hold an extraordinary shareholders’ meeting to oust Choi and other executives.

(Updated with share prices of Korea Zinc and Young Poong Precision)

Write to Jong-Kwan Park and Ji-Eun Ha at pjk@hankyung.com
 

Jongwoo Cheon edited this article.