Culmulative voting system approved for March general meeting amid looming legal fight

The current management of Korea Zinc tied the hands of takeover contender MBK-Young Poong, partially limiting the alliance's voting rights through a cross-shareholding structure. With its bid thwarted, MBK-Young Poong warned of legal action against the move.
Korea Zinc hosted an extraordinary general shareholders' meeting on Thursday. It was the first shareholders' meeting to take place since late September, when the current management led by Chairman Choi Yun-beom was targeted in a hostile takeover bid by a consortium of the private equity giant MBK Partners and its friend-turned-foe Young Poong.
At the shareholder meeting, Korea Zinc President Park Ki-duk, who convened the meeting as board chair, said, “According to the Commercial Act, Young Poong cannot exercise its voting rights over Korea Zinc.”
Although the MBK-Young Poong side had taken the lead in the rivalry, securing a larger stake with voting rights in the zinc smelter, the proxy battle took an abrupt turn a day before the shareholders' meeting.
On Wednesday, Korea Zinc reported that its Australian subsidiary Sun Metal Corporation secured a 10.33 percent stake in Young Poong. The shares worth 57.5 billion won ($40 million) had been owned by Choi and his allies.
With the transaction, Korea Zinc completed a cross-shareholding structure for its subsidiaries, also known as circular-shareholding, in which ownership flows down from Korea Zinc to Sun Metal Holdings, to Sun Metal Corporation, to Young Poong and back to itself.
Korea Zinc claimed Young Poong cannot exercise its voting rights over Korea Zinc as the Commercial Act stipulates that companies linked by ownership stakes of 10 percent or more cannot cast votes on each other.
MBK-Young Poong rejected that claim at the meeting, arguing Sun Metal Corporation cannot be regulated by the local Commercial Act as it is a foreign entity. It also accused Choi of violating the Fair Trade Act to defend his control over Korea Zinc.
“This feels like a robbery,” a lawyer representing Young Poong said, further signaling the likelihood of legal action against Choi and the company's management.
Nevertheless, the current management of Korea Zinc pushed ahead with the meeting, excluding the voting rights of Young Poong.
With Young Poong’s 25.42 percent stake in Korea Zinc held hostage, MBK-Young Poong relied on the remaining stake of 15.55 percent secured by MBK Partners through a tender offer, and shares held by Young Poong adviser Chang Hyung-jin and his side. Meanwhile, Choi and his allies own 34.24 percent of the company.
Under such circumstances, Korea Zinc adopted a cumulative voting system for director appointments. Some 76.4 percent of shareholders at the meeting voted for the adoption of the system.
Though the voting system could not be used for Thursday's shareholder meeting due to a court injunction secured by MBK-Young Poong, it will be able to adopt the system for shareholders' meetings in the future.
Other notions discussed at the meeting were a 19-person cap on the number of directors on the board and the appointment of new directors to it.
Meanwhile, Korea Zinc’s extraordinary shareholders' meeting was unable to properly get underway until six hours after its scheduled start time, with the management citing the need to confirm the shareholder delegations.
According to a company official, multiple shareholders delegated their voting rights to both sides, meaning the current management and the MBK-Young Poong alliance. The meeting eventually proceeded by shareholders agreeing to exclude those shares.
Executives and lawyers representing MBK-Young Poong accused Korea Zinc of trying to stall the meeting on purpose to secure more allies.