(Bloomberg) -- MBK Partners is open to considering a higher offer to take control of Korea Zinc Co. if rival suitors for the world’s biggest producer of refined zinc and lead emerge, a top executive of the private equity firm said.
Last week MBK, along with Korea Zinc’s biggest shareholder Young Poong Corp., sweetened its initial offer for Korea Zinc to 750,000 won per share, valuing it at 15.5 trillion won ($11.8 billion).
“We will consider it,” Kim Kwangil, a partner at MBK, who is leading the Korea Zinc transaction, said when asked whether the firm is prepared to raise its offer. But he cautioned that a counter offer was unlikely: “The possibility is very low.”
Speculation has been rife about Korea Zinc Chairman Choi Yun-beom, the late founder’s grandson, tapping white knights to fend off MBK.
The buyout firm also said it plans to hold onto to Korea Zinc for about a decade if its offer is successful to reap the benefits of the company’s recent investments.
“We will keep the company for a long time,” Kim said in an interview on Monday, from MBK’s Seoul headquarters. “We have plans for the next 10 years.”
The battle for control of Korea Zinc, founded more than 50 years ago by two families, has intensified after MBK’s surprise move. MBK, one of North Asia’s biggest buyout shops, was founded in 2005 by billionaire Michael ByungJu Kim, a former banker and a deal-maker with Carlyle Group. It has vowed to improve Korea Zinc’s corporate governance and its deteriorating finances.
The fight for control of Korea Zinc has consequences beyond South Korea, as the company and its affiliates account for about 12% of the world’s zinc produced outside of China, 5% of lead and 9% of its silver, according to Bloomberg analysis using data from consultancy CRU Group.
Predatory M&A
Korea Zinc has rejected MBK’s overtures as “predatory M&A” but the private equity’s audacious bid has turned the long-simmering battle for control into a public spat. The company also warned of supply disruptions for South Korea’s key industries like semiconductor if MBK takes over. MBK’s offer expires on Friday.
Kim also denied media reports that MBK plans to sell Korea Zinc’s key assets and technology.
“We hate investing in commodities because it’s a cyclical sector, but we’re investing in Korea Zinc because of its amazing margin, which makes it become the price setter in the market,” Kim said. “If we sell its technology, we know it will drive the company’s value down — why would we do that?”
MBK, which manages about $30 billion, has accused that some investment decisions made under Chairman Choi has resulted in significant losses and raised concerns about transparency, an allegation that Korea Zinc has rejected.
Shares of Korea Zinc finished 3.2% lower on Monday at 688,000 won. They have increased more than 20% since MBK announced its tender offer on Sept. 12.
A successful offer will cost the private equity firm about 2.3 trillion won, according to Bloomberg’s calculations.
Over the past decade or so, MBK has won some high-profile auctions in South Korea, including the $6.1 billion purchase of Tesco Plc’s Korea unit in 2015, which was led by Kim.
In an annual letter to investors in March, MBK said Korea trades at a discount to its peer benchmarks in Japan and China due to “poor corporate governance” by family-controlled conglomerates, known as chaebol.
“I personally knew it was going to be a tough journey but one that I must take as the first-generation PE fund partner,” said Kim, who joined MBK about two decades ago. “How much longer would South Korea be able to sustain this way?”
--With assistance from Shinhye Kang.
(Updates with more details from the interview throughout.)
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