MBK and Youngpoong in Controversy Over Amended Contract Fixing Call Option Price for Korea Zinc… Breach of Fiduciary Duty Dispute Emerges as Key Issue

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Attention from the legal community and capital markets is focused on allegations of potential breach of fiduciary duty surrounding an amendment to a call option contract signed between Youngpoong and MBK Partners (Korea Corporate Investment Holdings) during the management control dispute over Korea Zinc. The core of the suspicion is that Youngpoong voluntarily forfeited economic benefits associated with an increase in the tender offer price and amended the contract in a manner favorable to MBK.

According to documents on the business cooperation agreement submitted by Youngpoong to the court, the original call option contract between the two companies was structured so that fluctuations in the tender offer price were directly linked to the exercise price. The initial contract defined the basis for the exercise price as "the purchase price stated in the tender offer filing (or the final price if amended)," designed such that an increase in the tender offer price would correspondingly increase the amount Youngpoong could receive.

However, through an amended contract on September 25, 2024, the two companies fixed the reference price for the call option at 700,000 won per share (with a 5% annual interest add-on). Notably, the day after the contract amendment, on September 26, the MBK and Youngpoong side raised the tender offer price from 670,000 won to 750,000 won, and further increased it to 830,000 won on October 4.

The background for this speculation is that raising the tender offer price, which involves substantial fundraising and filing procedures, is difficult to decide within a single day. Therefore, it is presumed that Youngpoong's management may have intentionally forfeited their rights or provided favorable terms to MBK despite being aware of the plan to raise the price.

Due to this contract amendment, MBK secured the right to acquire Youngpoong shares based on 700,000 won per share, even though the tender offer price surged to 830,000 won. A simple calculation shows a difference of 130,000 to 140,000 won per share. Even calculating the exercise price at 770,000 won per share two years after contract signing, based on the clause adding 5% (35,000 won) of the reference price annually, this amount is 60,000 won lower than the final tender offer price (830,000 won) presented by MBK.

Considering that the number of shares in dispute exceeds 2 million, it is pointed out that Youngpoong has effectively forfeited economic benefits worth approximately 350 billion won. Consequently, some in the capital market industry interpret this as Youngpoong sacrificing their own interests to reduce MBK's share acquisition costs as MBK's acquisition burden increased.

On the other hand, Youngpoong and MBK are rebutting such breach of fiduciary duty suspicions. Both sides maintain that since MBK has not yet actually exercised the call option, it is inappropriate to definitively assert the possibility of loss for Youngpoong based solely on the current call option price. Additionally, there is a view that this was a legitimate business judgment made by comprehensively considering the macroscopic purpose of business cooperation and securing management control between the two companies, the overall economic effect of the contract, and various counterparty benefits, rather than a unilateral sacrifice.

Nevertheless, the impact continues, with Youngpoong shareholders such as KZ Precision filing derivative lawsuits against the management. The legal community anticipates fierce legal battles over whether Youngpoong's decision-makers forfeited contractual rights favorable to the company without reasonable consideration, thereby causing damages.

In future court proceedings, key issues are expected to include when internally the plan to raise the tender offer price was known at the time of the contract amendment on September 25, whether the basis for calculating 700,000 won was appropriate, and whether sufficient profit-and-loss reviews were conducted in Youngpoong's internal board of directors.

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*This content was translated by AI.View Original