Family feud over Korea's zinc giant threatens to affect supply chain
By Joyce Lee and Hyunjoo Jin
SEOUL, Oct 4 (Reuters) -Korea Zinc 010130.KS, the world's biggest refined zinc producer, has been embroiled in a bitter feud among founding families over control of its $12 billion zinc empire.
The winner of the battle stands to control South Korea's significant player in a U.S.-led effort to reduce heavy reliance on China for key metals and materials used in industries ranging from construction to automobiles, analysts said.
Private equity firm MBK Partners and Young Poong 000670.KS on Friday raised their offer price for shares in Korea Zinc to match a counteroffer from rival family members and Bain Capital.
WHO ARE THE MAJOR PLAYERS?
Young Poong was founded in 1949 as a trading company by two co-founders surnamed Chang and Choi born in what is now North Korea. The company expanded into smelting metals in the 1970s, and then in 1974 the two families formed Korea Zinc, with the Choi family managing the operation.
Scions of the two families are now joining forces with private equity firms in a takeover battle. The co-founding Chang family, which leads zinc producer peer Young Poong, joined forces with private equity MBK Partners for a $1.7 billion tender offer in September.
The Choi family teamed up with Bain Capital to fend off that takeover attempt.
Korea Zinc's largest shareholder is currently Young Poong, which runs a 400,000 metric ton-per-year zinc smelter at Seokpo, South Korea, which is the world's sixth largest.
Young Poong, also known for its bookstore chains in Korea, generates a majority of its revenue from sales of parts for smartphones and other electronic devices.
MBK Partners, a North Asia-focused private equity firm with investments in South Korea, Japan and China, has over $30 billion in capital under management, according to its website.
Founded by Michael ByungJu Kim in 2005, MBK has been a frequent player in South Korean deals, including the purchase of local hypermarket chain Homeplus from Tesco TSCO.L for $6.1 billion in 2015.
MBK Partners said in September it plans to eventually become the largest shareholder in Korea Zinc, partly by exercising a call option to buy Korea Zinc shares owned by Young Poong and associated entities.
WHAT ARE THE STAKES?
Korea Zinc and top shareholder Young Poong supply 85% or more of South Korea's zinc, mostly to protect steel used in cars, construction and other products.
Although Korea Zinc has the biggest market share among companies in refined zinc, China dominates the global production of refined zinc, considered a critical metal by Washington.
Korea Zinc has in recent years attracted partnerships from LG Chem 051910.KS and Hyundai Motor 005380.KS to produce battery materials in Korea, in response to Washington's call to reduce reliance on China for batteries and battery materials.
Korea Zinc also supplies materials for semiconductor firms such as sulphuric acid for Samsung Electronics 005930.KS.
WHAT SPARKED THE TAKEOVER BATTLE?
After decades of intertwined business operations, in the late 2010s Young Poong raised its ownership in Korea Zinc as part of a governance structure reorganisation to resolve circular shareholding, enlarging the stake controlled by the Chang family versus the Choi family.
When a third-generation member of the Choi family, Yun B. Choi, began to lead Korea Zinc's management in 2019, he began to expand the company's business.
Choi, a Columbia law school graduate, expanded investments beyond the core zinc business to battery materials, hydrogen and renewable energy, inviting criticism from Young Poong.
The conflict between visions for the company rose to the surface when Korea Zinc said this year it would no longer handle the treatment of sulphuric acid generated at Young Poong's Seokpo smelter.
Korea Zinc has said the costly transport and storage of the dangerous by-product from the Seokpo smelter should be Young Poong's responsibility handled with Young Poong's investment. Young Poong said Korea Zinc had violated a long-standing agreement and threatened Seokpo smelter's viability.
CONTRASTING FORTUNES
Korea Zinc is a key investment for loss-making Young Poong.
Although both Korea Zinc and Young Poong are both in the smelting business in South Korea, coping with higher electricity costs and tougher regulations, Korea Zinc has reported profits for the past straight 98 quarters.
Young Poong's CEO has also been arrested and charged this year over safety-related deaths at the company's Seokpo smelter, and is engaged in a lawsuit to nullify a South Korean authorities' environmental pollution ruling that may force the Seokpo smelter to close for two months.
($1 = 1,333.6000 won)
Reporting by Joyce Lee, Hyunjoo Jin, Additional reporting by Heekyong Yang; Editing by Tom Hogue
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