Korea Zinc's regular shareholders' meeting takes place at Mondrian Seoul Itaewon, Friday. Courtesy of Korea Zinc

Korea Zinc Chairman Choi Yun-beom, who has been engaged in a monthslong managerial dispute with the alliance of private equity firm MBK Partners and Young Poong, successfully defended his control at a regular shareholders' meeting Friday.

Based on simple shareholding percentages, the MBK alliance, which holds about 41 percent of the shares, outnumbers Choi's side, which holds about 34 percent. However, Choi was able to retain his management rights by utilizing the cross-shareholding voting rights restriction under the Commercial Act. This allowed his side to neutralize voting rights on Young Poong's 25.4 percent stake in Korea Zinc, preventing the MBK alliance from taking control of the board.

The MBK alliance strongly criticized Choi, saying he has repeatedly resorted to illegal practices to create the cross-shareholding structure. As the alliance signaled its willingness to pursue legal action to nullify the decisions made during the meeting, the ownership battle over the world's largest zinc smelting firm could enter a new phase depending on the court's decision.

When declaring the opening of the regular shareholders' meeting, Korea Zinc CEO Park Ki-deok, who chaired the meeting, stated that Sun Metals Holdings (SMH), an Australian subsidiary of Korea Zinc, holds a 10.03 percent stake in Young Poong, meaning Young Poong is unable to exercise its voting rights at this meeting in accordance with the Commercial Act.

Through this, key resolutions proposed by Korea Zinc's management, including Choi, passed. In particular, the proposal to limit the board size to 19 members was approved. The total number of shares voting in favor of this resolution was about 8.1 million, representing 71.11 percent of the shareholders present.

The passage of this resolution weakened the strategy that the MBK alliance had been pursuing, which had targeted the absence of a cap on the size of Korea Zinc's board in an effort to appoint a majority of directors and secure control.

Additionally, all five directors recommended by Choi's side were newly appointed.

In contrast, the MBK alliance succeeded in appointing only three out of the 17 directors it recommended. Notably, however, Kim Kwang-il, a partner at MBK Partners overseeing the Korea Zinc deal, joined the board, expanding the scope for the private equity firm's greater involvement in the zinc smelter's management.

Intense battle of tactics

Shareholders wait outside the venue for Korea Zinc's regular shareholders' meeting at Mondrian Seoul Itaewon, Friday. Joint Press Corps

The shareholders' meeting saw intense maneuvering right up until the start, with both sides fiercely battling over whether to invalidate or maintain the cross-shareholding restrictions.

The formation of a cross-shareholding structure is a key strategy for the Korea Zinc chairman to prevent the MBK alliance from seizing control.

Earlier, ahead of the firm's extraordinary shareholders' meeting held on Jan. 23, Choi's side took steps to restrict Young Poong's voting rights by allowing Sun Metals Corporation (SMC), a subsidiary of SMH, to acquire more than 10 percent of Young Poong's shares. This created a circular shareholding chain from Korea Zinc to SMC to Young Poong and back to Korea Zinc.

Cross-shareholding refers to the situation where company A and company B hold each other's shares. According to the Commercial Act, while the acquisition itself is not prohibited, if the holding exceeds 10 percent, it becomes subject to cross-shareholding restrictions, which means that voting rights on the entire stake are prohibited.

Utilizing that provision, Choi successfully defended his management rights during the Jan. 23 meeting and passed the desired resolutions, including the introduction of the cumulative voting system, which he had pushed for to block the MBK alliance's recommended candidates from joining the board.

However, on March 7, the court partially accepted the MBK alliance's request for an injunction to suspend the effect of the resolutions made at the Jan. 23 meeting, ruling that the restriction of Young Poong's voting rights was unjust.

The court at the time determined that cross-shareholding restrictions only apply to stock companies under the Commercial Act, and since SMC is not a stock company, the restriction was invalid.

In response, Choi's side took further action by creating a new cross-shareholding structure, where SMH, which is a stock company, received a dividend in kind of Young Poong shares held by SMC, thereby restricting Young Poong's voting rights.

In turn, the MBK alliance filed for another injunction on March 17, claiming that Choi's side was once again attempting to strip Young Poong of its voting rights.

However, the court, this time, rejected the motion on Thursday — on the eve of the regular shareholders' meeting — allowing the restriction on Young Poong's voting rights to remain in place.

The MBK alliance struck back again. It claimed that, during Young Poong's shareholders' meeting on Thursday night, the issuance of new shares, with a dividend of 0.04 shares per share to shareholders, reduced SMH's stake in Young Poong to below 10 percent — 9.96 percent — thus breaking the cross-shareholding relationship.

This meeting started after 6 p.m., and the announcement of the dissolution of the cross-shareholding relationship was made around 10 p.m.

On Friday morning, Choi countered once again. Ahead of Korea Zinc's regular shareholders' meeting, which was scheduled to start at 9 a.m., SMH disclosed that it had purchased 1,350 shares of Young Poong in the over-the-counter market. Through this, SMH's stake in Young Poong rose to 10.03 percent, reestablishing the cross-shareholding relationship.

Based on this, Korea Zinc CEO Park declared the opening of the meeting around 11:30 a.m. and announced that Young Poong's voting rights would be restricted.

The MBK alliance strongly protested, claiming that the Korea Zinc chairman has once again engaged in the creation of an illegal circular shareholding structure, even though the Fair Trade Commission is currently investigating the legality of such a practice he put forward before the Jan. 23 meeting.

"Korea Zinc's shareholders' meeting, where Chairman Choi's illegal and unlawful actions led to the deprivation of shareholders' basic rights, will be recorded in history as a disgrace and a stain on the Korean capital market," an MBK official said. "MBK Partners and Young Poong will immediately mobilize all available legal methods to address the distorted results of today's meeting caused by the restriction of Young Poong's voting rights."