Kim Kwang-il, a partner at MBK Partners, speaks during a press conference at Lotte Hotel Seoul, Thursday. Yonhap

Private equity firm MBK Partners, which joined hands with Young Poong in a series of disputes over Korea Zinc's management rights, claimed on Thursday that its tender offer for the world's largest zinc smelter is not a hostile takeover bid, but an attempt to improve the company's governance structure.

MBK noted that Korea Zinc's debt has been surging while its profitability has been deteriorating, since Choi Yoon-beom took control as its chairman in 2022.

“We are entering the position of the largest shareholder (of Korea Zinc) with the agreement of the original largest shareholder (Young Poong). So, our tender offer is part of a typical buyout,” Kim Kwang-il, a partner at MBK, said during a press conference in Seoul.

Young Poong, which was co-founded by Chang Byung-hee and Choi Ki-ho in 1949, established Korea Zinc in 1974.

Since then, Young Poong has been managed by the Chang family, while Korea Zinc has been managed by the Choi family. For over 70 years, the two families have maintained a unique business partnership, participating as a major shareholder in each other's companies, thereby sustaining their cooperative relationship.

However, the current Korea Zinc chairman, who is the grandson of the Young Poong co-founder Choi, has been seeking independence from Young Poong, putting him at odds with Young Poong adviser Chang Hyung-jin, the son of the other co-founder.

Korea Zinc Chairman Choi Yun-beom, left, and Young Poong adviser Chang Hyung-jin / Courtesy of each company

This has led to disputes over Korea Zinc's management rights, with the Chang family agreeing to hand over 50 percent plus one share of Young Poong's 33.1 percent stake in Korea Zinc to MBK on Sept. 12.

The private equity firm announced the next day that it will conduct a tender offer for up to 14.6 percent of Korea Zinc's shares by Oct. 4 in an apparent bid to inherit its position as the zinc smelter's largest shareholder and oust Choi from the chairmanship.

Currently, the Choi family holds a 15.6 percent stake in Korea Zinc.

According to MBK, Korea Zinc's debt has surged approximately 35 times, from 41 billion won ($30 million) in 2019 to 1.4 trillion won in the first half of this year. In particular, in 2022 when Choi took control, the debt increased by 135 percent from the previous year to exceed 1 trillion won.

Additionally, the smelting firm's operating profit margin dropped from 12 percent in 2019 to 6.8 percent last year.

“Due to deteriorating financial health, Korea Zinc's net cash is continuously decreasing, and by the end of this year, it is expected to turn into net debt,” Kim said, forecasting that the firm's net debt would be about 44 billion won around that time.

Despite the soaring debt, Korea Zinc has continued investing in companies unrelated to its core business under Choi's leadership. MBK cited SM Entertainment as one example of a “bad investment.”

After strengthening its management control through the tender offer, MBK said it will work to make proactive investments, aimed at maintaining and enhancing Korea Zinc's smelting competitiveness and expertise.

With regard to concerns raised by some politicians that the private equity firm's ultimate goal may be to sell the smelter to overseas nations such as China, Kim said, “We are well aware that Korea Zinc is a key national industry. We hope one of the domestic conglomerates will take ownership of it.”

Union backlash

About 70 members of the Korea Zinc union, meanwhile, held a rally in front of MBK's headquarters in central Seoul, also on Thursday, denouncing the tender offer as an attempt to take control of the company and then to reduce its workforce, cut back investments and maximize dividend profits before selling it to foreign capital.

“We demand that MBK declare an immediate withdrawal of its tender offer and that the government respond more actively,” the union said in a statement.

Korea Zinc, for its part, also said MBK's tender offer is a “clear case of a hostile takeover, described as a predatory and adversarial corporate raid backed by Chinese capital and other foreign interests.”

The smelter said its previous investment decisions were all based on careful analysis, highlighting that it will take legal action against "malicious and unverified" one-sided claims, including defamation.