Korea Zinc caps board membership in moves to derail Young Poong takeover

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Korea Zinc caps board membership in moves to derail Young Poong takeover

Published: 23 Jan. 2025, 19:13

SARAH CHEA
[email protected]

Audio report: written by reporters, read by AI

Korea Zinc shareholders wait for the start of an extraordinary shareholders meeting held at the Grand Hyatt Seoul in Yongsan District, central Seoul, on Jan. 23. [KOREA ZINC]

Korea Zinc dealt a possibly fatal blow to Young Poong’s takeover aspirations as it passed a motion limiting the maximum number of directors on its board to 19 on Thursday, further cementing Chairman Choi Yun-beom’s controlling rights in the world’s largest zinc smelter.

The approval came right after the Korean company passed the implementation of a “cumulative voting system” during an extraordinary shareholder meeting Thursday, which started after a five-hour delay, with 76.4 percent of participating votes in favor, 22.9 percent against and 0.6 percent abstaining.

The passage came as Korea Zinc restricted the voting rights of Young Poong, its largest stakeholder with 25 percent, citing a “cross-shareholding structure” regulation in the Commercial Act.

The smelter is pushing to add seven new directors to its board, while Young Poong's coalition with MBK Partners has nominated 14. The board currently has 12 members, 11 of whom are allies of Choi, which means that the appointment of new directors by either side directly influences the preservation of his position.

Korea Zinc labor union workers stage a picket protest opposing MBK Partners-Young Poong coalition to take over control rights of the zinc smelter at its shareholder meeting held at Grand Hyatt Seoul, central Seoul, on Jan. 23. [NEWS1]

The cumulative voting system allows shareholders to cast all of their votes for one candidate, deviating from the previous standard of a one-share, one-vote system. This move is advantageous to minority shareholders, a majority of whom back Chairman Choi, as they can outvote the Young Poong-MBK Partners coalition despite its status as the largest shareholder, as its influence is curtailed by the “3 percent rule” of Korea’s Commercial Act.

The rule stipulates that shareholders with stakes of more than 3 percent are limited in their voting power up to that percentage. Young Poong holds a 24.5 percent stake, while MBK owns 7.82 percent. Choi’s allies, with their smaller shares, are less hindered by this restriction.

The system can be applied in a regular shareholder meeting scheduled in March as a local court earlier in the week approved an injunction filed by the MBK-Young Poong alliance aimed at blocking Korea Zinc from using the system in Thursday’s meeting.

Young Poong strongly opposed motions to restrict its voting rights, arguing that Korea Zinc’s move is a “manipulative cross-shareholding that violates the Commercial Act.”

Sun Metals, the smelter’s Australian subsidiary, on Wednesday acquired 10.3 percent of Young Poong stakes owned by the Choi family and Young Poong Precision for 57.5 billion won ($39.9 million).

Article 369 of Korea’s Commercial Act specifies that if more than one-tenth of the total number of issued shares of a firm is held by a company, its parent or subsidiaries, or by a subsidiary alone, the firm in question has no voting rights for shares in the aforementioned company or parent company.

MBK and Young Poong noted that Sun Metals is “certainly a foreign company” and “a limited liability company rather than a traded company, so the law cannot be applied in this case.”

"We urge Choi to halt his cheap ploy and illegal act that strikes at Korea’s capital market and legal system,” the alliance said in a statement.

BY SARAH CHEA [[email protected]]