Korea Zinc Inc. will raise 2.5 trillion won ($1.8 billion) in rights issues in December following its share buybacks and allocate 20% of them to its employees, a move aimed at bolstering its defense against an MBK Partners-led group’s takeover bid.
The world’s largest lead and zinc smelter on Wednesday decided on the new share offerings at a board meeting to increase its free float, thus reducing the delisting risk, according to its regulatory filing.
The rights offering will come on the heels of tender offers by the MBK-Young Poong Corp.'s consortium and a Korea Zinc-Bain Capital alliance this month.
The tender offers have narrowed their shareholding gap, with the MBK-led coalition's stake exceeding that of Korea Zinc and its allied shareholders by about 3 percentage points. But the two sides failed to secure a majority.
Korea Zinc will issue 3,732,650 shares at 670,000 won each, or 25% below its buyback price of 890,000 won. The new shares will represent 20% of its outstanding shares, excluding treasury stocks that it bought back at 1.8 trillion won this month for cancellation.
During its tender offer, Bain Capital purchased a 1.4% stake in Korea Zinc for 260 billion won as a white knight to defend against the MBK-led group’s takeover bid.
Eighty percent of the new shares will be allocated for public subscription on Dec. 3-4. The remaining 20% will go to its employee share ownership association in accordance with relevant laws.
DEBT REPAYMENT
The rights offering announcement caught investors off guard. Its share price plunged by the daily limit of 30% to 1,081,000 won, snapping its five-day upward spiral. It came off its historic high of 1,543,000 won posted on Tuesday.
Korea Zinc will use the proceeds for debt repayment of 2.3 trillion won, capital expenditures of 135.0 billion won and other investments.
A chunk of the debt is believed to have been used for its buybacks.
Korea Zinc’s battle against the MBK-led group looks set to escalate into a lengthy proxy battle owing to the narrow margin between their shareholdings.
The rights offering will dilute the MBK-Young Poong alliance’s stake to about 36%.
If Korea Zinc’s employees with a combined 3.4% stake after the new share issues support its current management, it will secure about 37% of friendly shareholders, including its Chairman Choi Yun-birm.
NEGATIVE IMPLICATIONS
But its abrupt rights offerings could have negative implications. Some shareholders could turn their backs on Korea Zinc and support MBK's takeover attempt, investment bankers warn.
“From a short-term perspective, [Korea Zinc] appeared to get the upper hand [in the fight against MBK] by placing new shares with employee shareholders at a discount, but it will end up losing the support of other shareholders,” said an investment banker.
Write to Jun-Ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article.
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