We are all too familiar with family feuds. If you grew up playing sports, you may be familiar with feuding with a competitor. It begins with getting feisty during a match and explodes into a shouting match between your parents. It never ends well.
What if, however, two families are in business together? Surely this spells disaster. Each parent similarly competes for their family’s interest, all at the firm’s expense. I am pretty sure that if I were a parent and my child could potentially inherit a greater stake, I’d go for it.
What if the business is of global importance? A business so deeply involved with producing a globally desired commodity. A single slip-up, a feud prolonged too long, threatens entire production lines.
Enter Korea Zinc — a $12 billion empire.
The company was established in 1974 by two founding families, the Choi and Jang families. Since its establishment, the company has been jointly controlled. Tensions escalated in the 2010s when the Jang family increased their stake during governance restructuring.
Choi Yun-Beom, a third-generation member of the Choi’s, took leadership of Korea Zinc in 2019 and expanded the company’s focus to battery materials and renewable energy. This, inevitably, drew criticism from the Jang family. This year, tensions boiled over. Korea Zinc stopped processing sulphuric acid for Young Poong’s Seokpo smelter — vital for zinc production.
Private equity, under the pretence of addressing Choi’s governance failures, joins the battle. MBK, a Seoul-based private equity firm, offered a takeover bid, aiming to control Korea Zinc by acquiring the 33.1% stake held by the Jang family. MBK has outwardly criticised Choi for questionable investments without board approval, including funds operated by Choi’s close associate on trial for stock manipulation.
Choi Yun-Beom is continuing to resist the takeover. The bid, he argues, is a hostile attack, threatening the company. Choi, in a bid to strengthen his family’s position, has secured support from Bain Capital, which invested $326 million for a 2.5% stake. Additionally, a $2 billion share buyback plan was introduced.
There are, therefore, fears that a prolonged feud may disrupt business and future projects, particularly given upcoming contract negotiations.
The zinc supply contract negotiations are critical. They set the global benchmark for zinc processing fees. The annual negotiations, typically held in January or February, set the terms for the pricing and availability of zinc for the entire year.
Zinc is an essential component in industries such as construction, automobiles, and electronics, where it is used to galvanise steel and produce batteries. A disruption in contract negotiations could lead to uncertainty in pricing and availability, delaying production. Any instability at Korea Zinc ripples through multiple industries, affecting manufacturing and supply chains worldwide.
There are also concerns about whether private equity involvement will prioritise sustainable growth. MBK could disrupt long-term business strategies and partnerships, such as the diversification into battery materials, essential for the rapidly growing electric vehicle market. The company is at the heart of Western efforts to build a supply chain that is less reliant on China. Key strategic investors, like LG and Hyundai, have expressed worries that an MBK takeover may threaten crucial projects like the Ulsan nickel smelter — vital for EV battery production. MBK has attempted to alleviate fears, pledging not to sell Korea Zinc to foreign entities, particularly Chinese buyers.
The battle is, inevitably, being fought on the legal front, with Young Poong Precision, allied with Chairman Choi, filing an injunction to block cooperation between MBK and Young Poong. The battle centres around allegations of breach of fiduciary duty, adding a new layer to the intense corporate struggle.
The ongoing power struggle between the Choi and Jang families threatens to disrupt key supply chains. Stability in leadership is crucial to ensure that Korea Zinc can continue to supply materials indispensable to Western de-risking from China.
The family feud at the top of Korea Zinc tells us, clearly: Blood and money do not mix well.
Image: Wikimedia Commons/UC Rusal Photo Gallery
No image changes made.
Comentarios