Kim Kwang-il, right, a partner at MBK Partners, speaks during a press conference at Lotte Hotel Seoul, Sept. 19. Yonhap

An alliance between private equity firm MBK Partners and Young Poong has acquired more than 5 percent of Korea Zinc's total outstanding shares through a monthlong tender offer, giving them a strategic advantage in the battle for management control of the world's largest zinc smelter, according to investment banking (IB) industry insiders.

MBK Partners is set to announce the results of its tender offer, Thursday, which is the settlement date. The tender offer concluded on Monday.

The MBK-Young Poong alliance currently holds a 33.1 percent stake in Korea Zinc. Industry insiders predict that if MBK secures at least 3.5 percent of shares through the tender offer, it will surpass the voting rights of Korea Zinc Chairman Choi Yoon-beom's family at the next shareholders' meeting, potentially tipping the balance in the battle for management control.

If MBK secured around 7 percent of the shares, it would obtain a majority of voting rights, and the management rights would shift in its favor.

"Today will be remembered as a significant milestone in the Korean capital market. We will focus all our efforts to halt the buyback of Korea Zinc's treasury shares being carried out by Chairman Choi's side," an MBK official said.

Choi, in his effort to retain control of Korea Zinc, is continuing the company's tender offer to buy back its own shares until Oct. 23. Currently, Choi and his allies hold around 34 percent of the shares, positioning them closely against the MBK-Young Poong alliance in the ongoing battle for management rights.

MBK joined forces with Young Poong, which is run by the family of the co-founder of Korea Zinc and its current largest shareholder. The private equity firm launched its tender offer on Sept. 13, aiming to become the smelting firm's largest shareholder and oust Choi.

In response, Choi, the grandson of the other co-founder, announced the firm's offer to purchase company shares on Oct. 2.

During this process, the MBK-Young Poong alliance raised its tender offer price twice, from the initial 660,000 won ($487) per share to 750,000 won, and then to 830,000 won.

A board meeting of Korea Zinc takes place at the firm's headquarters in Seoul, Friday. Yonhap

Choi's side began its own share buyback at 830,000 per stock and increased the price once to 890,000 won, aiming to secure up to 17.5 percent of the firm's total shares. Additionally, its ally, Bain Capital, a U.S.-based private equity firm, is separately conducting its tender offer for a 2.5-percent stake in Korea Zinc.

Industry watchers expect that the subscriptions would not concentrate on one side but would likely be divided between both parties, given that investors are expected to vary their subscriptions based on the application of transfer income tax and dividend income tax.

The uncertainty surrounding an injunction filed by the MBK-Young Poong coalition to halt the smelter's share buyback was also expected to distribute the subscription volume between both sides.

Previously, the MBK alliance filed for the injunction with the Seoul Central District Court, stating that using company funds to buy back shares in order to defend management rights could constitute breach of duty, and therefore should be stopped.

If the court rules in favor of MBK, Korea Zinc's share buyback will be halted. The court is expected to announce its ruling on or around Oct. 21.

Rather than depending entirely on the court's decision, MBK viewed it as a practical strategy to obtain at least a portion of the shares, even if it fell short of the 14.61 percent goal. This would still position the MBK-Young Poong alliance to participate in a voting contest at the shareholders' meeting, ensuring a degree of leverage.

“If the MBK-Young Poong alliance sees low subscription rates, it would indicate that many investors are opting for Korea Zinc's share buyback,” an official from the IB industry said. “However, considering that these treasury stocks are nonvoting shares, this outcome might not necessarily result in negative consequences for the alliance.”

The MBK-Young Poong alliance is reportedly planning to convene an extraordinary shareholders' meeting soon, aiming to gain control of the board and strengthen its position within Korea Zinc.

Korea Zinc's articles of incorporation do not limit the number of directors, and there are currently six internal directors at the company. The plan is to introduce at least five new directors to the board, alongside the existing director, Young Poong adviser Chang Hyung-jin, in order to take control of the board.

If the extraordinary shareholders meeting does not resolve the situation, the dispute is expected to continue until the regular shareholders meeting in March next year.