Korea Zinc (KRX:010130) has raised concerns about the tactics employed by MBK Partners and Young Poong in their ongoing hostile takeover attempt. Questions are mounting over the intent and timing of their repeated injunction filings, which coincide with critical events, including a 58-day suspension of Young Poong’s smelting operations due to environmental violations. These actions are drawing criticism for allegedly misleading the market and undermining the rights of minority shareholders.

MBK Partners and Young Poong recently filed an injunction to block Korea Zinc’s plan to introduce cumulative voting, a system designed to empower minority shareholders. This marks yet another attempt to obstruct Korea Zinc’s shareholder-friendly measures, despite strong support for these initiatives from minority shareholders, civic organizations, and government bodies.

Two weeks ago, MBK Partners and Young Poong sought an injunction order against the alleged disposal of treasury stocks by Korea Zinc. The legal action was based on their groundless speculations. When the injunction request was likely to be dismissed and denied, they quietly withdrew it and rushed to file yet another injunction application against the planned introduction of cumulative voting, which is designed to empower and protect minority shareholders. When it became likely that the injunction request would be dismissed, they quietly withdrew it and promptly filed yet another injunction application against the planned introduction of cumulative voting.

During the tender offer targeting Korea Zinc, MBK Partners and Young Poong submitted two nearly identical injunction requests in a row, which were exploited as a means to facilitate fraudulent transactions and disrupt the market. As a result, many believe that MBK and Young Poong have lost the trust of the market. Nevertheless, MBK Partners and Young Poong continue to abuse laws, adding confusion to the market, which invites criticism.

Notably, just when the government issued a 58-day suspension order against Young Poong’s smelting operations on the grounds of environmental violations following the Supreme Court’s final ruling, Young Poong issued a press release stating it filed an injection order against Korea Zinc. The timing raised skepticism about the intention and purpose of the legal action.

MBK Partners and Young Poong announced on December 30, 2024 that they filed an injunction request to stop Korea Zinc from adding the election of board directors through cumulative voting to the agenda list, which was passed by an ad-hoc BOD meeting held on November 23, 2024. They argued that even if the shareholder proposal to amend the Articles of Incorporation to introduce cumulative voting is valid, the shareholder proposal to elect board directors through cumulative voting is not valid.

However, as Korea Zinc explained on several occasions, it is lawful and legitimate to include cumulative voting on the agenda list for the upcoming extraordinary general meeting on January 23, 2025. Legal experts share the view that there are no legal and procedural issues for the extraordinary general meeting to discuss the proposed amendment to the Articles of Incorporation to introduce cumulative voting and the election of board directors through cumulative voting, which is premised on the BOD resolution on the amendment to the Articles of Incorporation.

Even in the case where a listed company’s Articles of Incorporation excludes cumulative voting, a shareholder proposal to amend the Articles of Incorporation to introduce cumulative voting is lawful under the Code of Commerce. There are, in fact, numerous precedents from other companies where shareholder proposals premised on amendments to the Articles of Incorporation were submitted and voted on at shareholders’ meetings without any legal or procedural issues.

Moreover, it is consistent with the Supreme Court's rulings. According to the Supreme Court's ruling (dated June 28, 2007. No. 2006DA62362), resolutions take effect in principle upon adoption by the general shareholders' meeting. In other words, if the general shareholders’ meeting resolves on a shareholder proposal for amending the Articles of Incorporation to introduce cumulative voting, the subsequent cumulative voting is both legal and lawful, as confirmed by expert opinions.

MBK Partners and Young Poong must be fully aware of prevailing expert opinions and the Supreme Court’s previous ruling. Nevertheless, MBK Partners and Young Poong are blindly pursuing an injunction request to remove a potential barrier for them to take the control of the BOD at the upcoming shareholders meeting. Their so-called commitment to improving corporate governance and increasing shareholder value appears to be sidelined in favor of their immediate interests.

This also highlights their level of impatience.

MBK Partners needs to quickly collect handsome dividends by dominating Korea Zinc’s BOD because it has raised over W1 trillion through profit-seeking liquidity providers. Young Poong is also in desperate need to take control of Korea Zinc’s BOD, so it can pass the burden of handling hazardous materials such as sulfuric acid and smelting residues onto Korea Zinc. Young Poong needs the right to manage Korea Zinc to address its own crisis such as a two-month suspension of smelting operation.

The urgency of their situation explains why they cannot afford to maintain the pretense of working for shareholder value.

Notably, Young Poong announced that it filed an injunction application against Korea Zinc, just in time for the Supreme Court’s final decision to uphold the government’s punitive action, which led to a 58-day suspension of its smelting operation on grounds of environmental violations. The timing raises suspicion, and Young Poong cannot avoid criticism that it tried to play the media to draw attention away from its shady acts.

At the same time, the latest injunction request bears a resemblance to the two nearly identical injunction applications that were filed and rejected during the public tender offer period. MBK Partners and Young Poong have made frivolous injunction requests based on unfounded claims, falsely accusing Korea Zinc of having plans to provide treasury stocks as a collateral for loan. However, they withdrew the injunction when it became clear their chances of success were slim. This raises the question of whether the latest injunction motion is meant to seek a legal resolution or stage a smear campaign to mislead the market, shareholders, and investors.

Above all, the latest move by MBK Partners and Young Poong is met with skepticism because cumulative voting is one of the well-known systems designed to protect and empower minority shareholders. The introduction of cumulative voting is strongly supported by minority shareholders, civic organizations, government bodies, and political leaders.

It is worth noting that MBK Partners has challenged numerous companies in Korea while emphasizing its commitment to improving corporate governance. Yet, its opposition to cumulative voting—a widely recognized measure to improve governance—appears contradictory. MBK Partners’ latest action suggests its decisions are driven by immediate control needs rather than governance principles.

The Code of Commerce (Article 363-2) states that shareholders shall submit proposals no later than six weeks before the shareholders meeting. It is to ensure that the company can have enough time to call a meeting, write meeting agenda and prepare for the meeting. Article 542-7 of the Code of Commerce also states that the six-week time limit also applies to a shareholder proposal for cumulative voting. Based on these provisions, there are no legal or procedural issues.

Once cumulative voting, an agenda tabled by Korea Zinc’s BOD, passes at the upcoming extraordinary general meeting, it will allow minority shareholder groups to elect directors, making the BOD represent more diverse stakeholders, such as National Pension Service, other institutional investors, and minority shareholders, not to mention MBK Partners and Young Poong. The diversity in the BOD would also significantly loosen the grip of the current BOD and the existing management.

Moreover, Korea Zinc has submitted various transformative measures as meeting agenda items to enhance shareholder value, including new rules for minority shareholder protection, quarterly dividends, stock splits, and capping the number of board directors.

“The market, shareholders, the government, the political circle, people of Ulsan city, and the general public understand that Korea Zinc has called for an extraordinary general meeting to improve corporate governance and increase shareholder value,” said a spokesperson for Korea Zinc. “It is time to focus on winning shareholder support through compelling proposals rather than opposing for the sake of opposition.”

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