Two Families, in Business for 50 Years, Wage War in a South Korean Boardroom
Control of Korea Zinc, the world’s largest
producer of zinc, is at stake in a battle challenging the country’s entrenched chaebol
system of powerful conglomerates.
·
A company of great geopolitical significance,
one of the few suppliers of metals critical to global supply chains without ties
to China.
·
The battle for control of Korea Zinc strikes
at a foundation of the country’s economy: the chaebol. Many chaebols are run by
their founding families, backed by corporate boards who reliably fall in line with
their interests.
·
Bracing for a showdown, Young Poong partnered with MBK Partners, a Seoul-based private equity
fund that manages $31 billion in investor money.
·
Korea Zinc, which opposed the offer, countered
by buying back some of its shares, but a week later announced plans to issue new
shares to investors at a much lower price.
·
“In Korea, it’s common practice for people
to own 15 to 20 percent of a company and run it as if it is their individual asset,”
he said. “The moment you think that way, a company is destined for failure.”
[ABS
News Service/22.01.2025]
When two longtime
business partners established a subsidiary 50 years ago to make zinc out of an industrial
complex set up by South Korea’s government, they settled on an unusual division
of power.
The new venture, Korea Zinc, would be managed
by the Choi family. The existing parent company, Young Poong,
would be run by the other founder’s household, the Chang family. Both clans agreed
to respect each other’s management. The arrangement came to be known as “two families
under one roof.”
Korea Zinc went on to become the world’s
largest producer of zinc and an essential cog of South Korea’s economy.
But now the relationship between the Chois
and the Changs has broken down in dramatic fashion. The
descendants of the two founders, who died decades ago, are locked in a bare-knuckle
fight for control of Korea Zinc.
The feud has broader implications for South
Korea’s biggest companies, testing whether the powerful family-run conglomerates,
known as chaebols, can coexist with Western-style corporate governance. At the center of the battle is a company of great geopolitical significance,
one of the few suppliers of metals critical to global supply chains without ties
to China.
At a shareholder meeting on Thursday, the
Choi family will seek to retain management rights for Korea Zinc and fend off a
takeover attempt by Young Poong, still controlled by the
Chang family. Young Poong has its own zinc-refining business
as well as a bookstore chain and electronics components makers.
Young Poong has
partnered with MBK Partners, one of Asia’s biggest private equity firms, in its
bid to oust Korea Zinc’s chairman, Yun B. Choi, who is the founder’s grandson. The
consortium has accused Mr. Choi of being a poor manager, making questionable investments
and not doing enough to maintain the company’s competitiveness.
Korea Zinc has said the Chang family’s
takeover bid is an attempt by Young Poong to bolster its
flagging zinc operations. It has also stoked concerns that Korea Zinc may fall into
Chinese hands, because of the private equity fund’s ties to China through its investments.
The corporate drama is playing out at a
delicate time for South Korea. The country’s president, Yoon Suk Yeol, was impeached after declaring martial
law last month. The political crisis has roiled the economy, undermined the currency
and damaged business confidence.
Mr. Choi acknowledged that the corporate
fight could make some foreign investors wary of South Korea. “It’s definitely a
chaotic environment,” he said.
The battle for control of Korea Zinc strikes
at a foundation of the country’s economy: the chaebol. Many chaebols are run by
their founding families, backed by corporate boards who reliably fall in line with
their interests.
“This is the tip of the iceberg,” said
Choi Sung-ho, a professor of financial and real estate
asset management at Kyonggi University not related to
the family involved in the dispute. “It does signal to these big companies that
such takeovers are possible.”
The two families’ intertwined history traces
to 1949, when Chang Byung-hee and Choi Ki-ho started Young Poong. It began shipping,
mining and trading businesses before it opened the country’s first facility to extract
zinc metal from ores. In 1974, it established Korea Zinc as a subsidiary.
The split ownership arrangement endured
for five decades. The two sides agreed to a contract stipulating that major decisions affecting the other’s ownership would require
mutual consent.
According to Young Poong,
Korea Zinc started to violate this agreement when power transferred to Mr. Choi,
a Columbia University-educated lawyer who worked at the New York law firm Cravath, Swaine & Moore. He oversaw the turnaround of Korea
Zinc’s Australia operations before becoming chief executive in 2019 and chairman
in 2022.
Young Poong said
Mr. Choi took steps to dilute the Chang family’s stake by issuing shares to companies
friendly to Korea Zinc’s current management.
“I came to realize that it was probably
best to part ways,” Mr. Choi told reporters this month.
The dispute escalated quickly. Young Poong opposed two of Korea Zinc’s proposals at last year’s shareholder
meeting. Korea Zinc refused to renew a longstanding business deal and it seized
board control at Sorin Corp., a jointly owned sales and marketing subsidiary.
Bracing for a showdown, Young Poong partnered with MBK Partners, a Seoul-based private equity
fund that manages $31 billion in investor money.
MBK was founded by the billionaire Michael
ByungJu Kim, a South Korean-born, U.S.-educated financier
who published a loosely-autobiographical novel in 2020 about a young banker who becomes
enmeshed with powerful chaebol families.
MBK has a history of challenging South
Korea’s corporate establishment, launching a takeover bid in 2023 to oust the chairman
of Hankook, the parent company of South Korea’s largest tire maker. It failed to
secure a controlling stake. In this case, MBK said it was brought in as a “white
knight” by Young Poong.
In September, Young Poong and MBK announced a tender offer for Korea Zinc shares,
sweetening its bid twice in the process. Korea Zinc, which opposed the offer, countered
by buying back some of its shares, but a week later announced plans to issue new
shares to investors at a much lower price.
Its stock price tumbled, infuriating shareholders
and catching the attention of regulators concerned about a lack of disclosure. The
company withdrew the issuance.
After apologizing, Mr. Choi said he would
step down as chairman following the shareholder meeting but remain Korea Zinc’s
chief executive. He called the share issuance plan “not the wisest of decisions.”
A partner at MBK who is leading the Korea
Zinc deal, Kim Kwang Il, said that the Korea Zinc board was “trying to protect Chairman
Choi’s control at the cost of all the shareholders.”
At the shareholder meeting, each side is
proposing a slate of directors. Young Poong and MBK hold
47 percent of the voting shares, compared with around 40 percent for Mr. Choi and
his allies.
Korea Zinc is hoping independent shareholders
will choose its track record and continuity to ensure the company carries out plans
such as opening a nickel refinery, the largest by a non-Chinese
company, next year.
MBK and Young Poong
said they were not interested in running Korea Zinc day
to day. They plan to turn over the company to current executives, but not Mr. Choi.
“A company cannot achieve stability or
engage in proper management if the C.E.O. lacks the confidence of its largest shareholder,”
said Chang Se-hwan, Young Poong’s
vice chairman and its founder’s grandson.
The fight has turned fierce. MBK has accused
Mr. Choi of cronyism for a $380 million investment made by Korea Zinc into a private
equity fund run by his old classmate. Mr. Choi said the investment was producing
“decent returns.”
Korea Zinc has called Young Poong and MBK’s actions a “hostile takeover,” even though Young
Poong has owned one-third of the company for decades.
Fears about China are core to Korea Zinc’s defense.
In a December letter to the U.S. State
Department, Representative Eric Swalwell, a Democrat from California, expressed
concerns that MBK might hurt American and South Korean efforts “to insulate and
expand critical minerals supply chains” from Chinese influence.
Robert O’Brien, a national security adviser
during the first Trump administration who is now chairman of American Global Strategies,
an advisory firm with overseas clients, issued a letter on Jan. 16 stating the takeover
could allow Beijing access to Korea Zinc and expand China’s dominance in critical
minerals. The letter was quickly promoted by Korea Zinc.
Mr. Kim, the MBK partner leading the deal,
said the firm’s Chinese investor accounts for about 5 percent of its fund. He declined
to identify the investor, but he said they had no influence. He called the concerns
“totally groundless.”
Mr. Choi said he wanted a “more amicable”
parting, but admitted that it was hard not to take the dispute personally.
“It matters to me that it was my grandfather
who founded the company and it was my father who put his life into this company,”
he said.
Mr. Chang said he had “mixed feelings.”
He respected and worked closely with Mr. Choi’s father, who also served as the officiant
at his wedding. However, he said he was concerned with the way Mr. Choi ran the
company.
“In Korea, it’s common practice for people
to own 15 to 20 percent of a company and run it as if it is their individual asset,”
he said. “The moment you think that way, a company is destined for failure.”