2 families, in business for 50 years, fight for control of Zinc Korea

When our long-time business partner set up a subsidiary 50 years ago to create zinc from an industrial plant established by the South Korean government, it was rooted in they are unusual distribution of power.

The new company, Korea Zinc, will be managed by the Choi family. The existing parent company, Young Poong, will be run by another founding family, the Chang family. Both parties agreed to respect each other’s administration. The program was called “two families under one roof”.

Korea Zinc has become the world’s largest producer of zinc and is a vital component of South Korea’s economy.

But now the relationship between the Chois and the Changs is completely broken. Descendants of two founders, who died decades ago, are locked in a secret war for control of Korea Zinc.

The dispute has wider implications for South Korea’s biggest companies, testing whether 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 importance, one of the few critical metal suppliers in the global supply chain that is not tied to China.

At Thursday’s shareholder meeting, the Choi family will seek to retain Korea Zinc’s management rights and oppose a takeover attempt by Young Poong, which is still controlled by the Chang family. . Young Poong has his own zinc refinery as well as a chain of bookstores and electronics manufacturers.

Young Poong has partnered with MBK Partners, one of Asia’s largest private equity firms, in a bid to oust Korea Zinc’s chairman, Choi Yun-beom, who is the founder’s grandson. The consortium accused Mr. Choi of being a poor manager, making questionable investments and not doing enough to keep the company competitive.

Korea Zinc said the Chang family’s proposal was Young Poong’s attempt to strengthen zinc’s operations. It has also raised concerns that Korea Zinc could fall into Chinese hands, given the private equity fund’s ties to China through its investments.

Corporate drama is going through difficult times for South Korea. The country’s president, Yoon Suk Yeol, was impeached after declaring martial law last month. The political crisis has damaged the economy, damaged currency and destroyed business confidence.

Mr. Choi acknowledged that the corporate conflict could make foreign investors wary of South Korea. “Obviously, it’s a turbulent world,” he said.

The battle for control of Korea Zinc is hitting the core of the country’s economy: the chaebol. Many chaebols are run by their founding families, supported by corporate boards that are sure to align with their interests.

“This is the tip of the iceberg,” said Choi Sung-ho, a professor of finance and real estate at Kyonggi University who is not related to the families involved in the dispute. “It tells these big companies that it’s possible to copy it.”

The story of two intertwined families dates back to 1949, when Chang Byung-hee and Choi Ki-ho started Young Poong. It began operating a factory, mining and trading before opening the first facility in the country to extract zinc metal from the ore. In 1974, established Korea Zinc as a subsidiary.

The property separation agreement lasted five decades. Both parties have agreed to an agreement that states that major decisions affecting the property of the other party require consent.

According to Young Poong, Korea Zinc began violating this agreement when it was 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 operations in Australia before becoming executive chairman in 2019 and chairman in 2022.

Young Poong said that Mr. Chang had taken steps to dilute the stake of the Chang family. Choi by issuing shares to companies friendly to Korea Zinc’s current management.

“I came to the realization that it might be better to separate,” Mr. Choi told reporters this month.

The conflict escalated quickly. Young Poong opposed two of Korea Zinc’s proposals at a shareholder meeting last year. Korea Zinc has refused to renew a long-standing trade agreement and seized control of the board at Sorin Corp., a trading and trading company.

Young Poong has partnered with MBK Partners, a Seoul-based private equity fund that manages $31 billion of investors.

MBK was founded by billionaire Michael ByungJu Kim, a South Korean-born, US-educated financier who published a 2020 nonfiction drama about a young banker who becomes entangled with a powerful chaebol family.

MBK has a history of challenging business setups in South Korea, starting a bid in 2023 to oust the chairman of Hankook, South Korea’s largest tire maker. It failed to secure a controlling stake. In this case, MBK said that Young Poong took it “because it is white”.

In September, Young Poong and MBK announced a bid for Korea Zinc shares, doubling the bid in the process. Korea Zinc, which opposed the offer, countered by buying some shares, but a week later announced plans to issue new shares to investors at a lower price.

Stock prices plummeted, angering shareholders and attracting the attention of regulators worried about a lack of disclosure. The company took down the publication.

After the apology, Mr. Choi said he would step down as chairman after the shareholders’ meeting but remain Korea Zinc’s chief executive. He called the buyback plan “not the smartest decision.”

MBK’s partner in charge of the Korea Zinc deal, Kim Kwang Il, said the Korea Zinc board is “trying to protect President Choi’s control at all costs to shareholders. “

At the meeting of public officials, both sides present their electoral rolls. Young Poong and MBK hold 47 percent of the vote, compared to about 40 percent for Mr. Choi and his allies.

Korea Zinc hopes that private shareholders will choose its track record and continuity to ensure that the company carries out plans such as opening a nickel plant, the largest of its kind by a non-Chinese company, next year. .

MBK and Young Poong said they are not interested in the day-to-day management of Korea Zinc. They plan to turn the company over to the current manager, not Mr. Choi.

“A company cannot achieve stability or participate in proper management if the CEO does not trust its most important shareholders,” said Chang Se-hwan, Young Poong’s vice president and grandson. its founder.

The battle turned fierce. MBK accused Mr. Choi of being a whistleblower over a $380 million investment by Korea Zinc in a private equity fund run by his former classmate. Mr Choi said the investment was producing a “decent return”.

Korea Zinc called the actions of Young Poong and MBK a “hostile takeover”, even though Young Poong has owned a third of the company for decades. Fears about China are at the core of Korea Zinc’s defense.

In a December letter to the U.S. State Department, Representative Eric Swalwell, Democrat of California, expressed concern that the MBK could hurt U.S. and South Korean efforts “to remove and expand the critical mineral supply chain” from Chinese leadership.

Robert O’Brien, a national security adviser during the first Trump administration who is now president of American Global Strategies, a consulting firm with overseas clients, issued a letter on Jan. 16 saying that the Expropriation will allow Beijing access to Korea Zinc and expand China’s borders. the dominance of critical minerals. Korea Zinc quickly promoted the letter.

Mr. Kim, the MBK partner leading the deal, said the company’s Chinese investors account for about 5 percent of its stock. He declined to identify the investors, but said they were not affected. He called these concerns “completely unfounded.”

Mr. Choi said he wanted a “more amicable” separation, but admitted that it was difficult to avoid the conflict.

“What’s important to me is that my grandfather founded the company and my father put his life into this business,” he said.

Mr Chang said he had “mixed emotions”. He respected and worked closely with Mr. Choi’s father, who was also officiating at his wedding. However, he said he was concerned about how Mr. Choi was running the company.

“In Korea, it’s common for people to own 15 to 20 percent of a company and run it as if it were their own property,” he said. “Once you think like that, a company is destined for failure.”