MBK to reduce investment burden through call option on Korea Zinc shares? Controversy over shareholder interests

*This content was translated by AI.View Original

Analysis has emerged suggesting that MBK Partners (MBK) could mitigate the investment burden associated with shares purchased at high prices during its bid to secure control of Korea Zinc by leveraging a call option obtained from Youngpoong. With the confirmation of a contract structure allowing MBK to acquire additional shares held by Youngpoong at a price approximately 18% lower than the existing average acquisition cost, controversy has arisen over whether Youngpoong provided terms that favored reducing MBK’s investment burden over protecting the interests of its own shareholders.

According to investment banking (IB) industry sources and related reports on the 8th, the average acquisition price of shares purchased by MBK to secure control of Korea Zinc is known to be approximately 940,000 won per share. In contrast, the exercise price of the call option secured from Youngpoong is approximately 770,000 won per share as of October 2026. This level is approximately 170,000 won lower than the existing average acquisition price, representing a reduction of about 18%.

It is known that the management cooperation agreement signed between MBK and Youngpoong in September 2024 includes a call option clause allowing MBK to purchase 2.57 million shares of Korea Zinc held by Youngpoong under certain conditions.

The exercise price of the call option is structured based on a benchmark of 700,000 won per share, with an annual addition of 35,000 won, equivalent to 5%. Accordingly, as of October 2026, two years after the contract was signed, the exercise price is calculated at approximately 770,000 won per share.

Assuming MBK acquires all 2.57 million shares at 770,000 won per share, the required funds would be approximately 1.979 trillion won. Considering that acquiring the same quantity at the existing average acquisition price of 940,000 won would require approximately 2.4159 trillion won, the simple price difference amounts to about 436.9 billion won.

This is a comparative amount based on assumptions, not an actual confirmed investment cost saving. However, it draws attention because if MBK exercises the call option to secure additional shares at a relatively lower price, it can be expected to reduce the overall average acquisition price when combined with previously purchased shares.

The core of the controversy is that the method for calculating the call option price was changed ahead of an increase in Korea Zinc’s tender offer price.

It is known that the original management cooperation agreement signed in September 2024 included a structure reflecting fluctuations in the tender offer price into the call option exercise price. However, both parties amended this through a subsequent modification contract on the 25th of the same month, changing the method to set a benchmark price of 700,000 won per share and adding an amount equivalent to 5% annually.

On September 26, the day after the contract amendment, Korea Zinc’s tender offer price was raised from the previous 660,000 won to 750,000 won. It then rose to 830,000 won on October 4, but according to the amended contract, the call option benchmark price remained at 700,000 won per share.

Had the original method linking to the tender offer price been maintained, there was a possibility that the increase in the tender offer price would have been reflected in the call option exercise price. Consequently, major issues have emerged regarding what economic benefits Youngpoong secured by changing the price calculation method and whether it partially forfeited profit opportunities associated with future increases in Korea Zinc’s stock price.

In fact, KZ Precision, a shareholder of Youngpoong, has filed a derivative lawsuit against Youngpoong’s board of directors and others, arguing that the management cooperation agreement could cause damage to Youngpoong and its shareholders.

KZ Precision is questioning the circumstances behind the change in the call option price calculation method ahead of the tender offer price increase and the rationality of the board’s decision-making at the time. On the 30th of last month, it requested the disclosure of the full texts of the original management cooperation agreement and the amended contract, as well as board meeting minutes, external advisory materials, and option valuation documents.

KZ Precision specifically argues that it must be clarified why the price calculation method, which was previously linked to the tender offer price, was changed to a fixed-price method that could be disadvantageous to Youngpoong, and what economic consideration Youngpoong secured at the time.

On the other hand, Youngpoong and MBK maintain that the merits of the contract should not be judged solely by the call option exercise price. They explain that Youngpoong also holds a put option allowing it to require MBK to purchase Korea Zinc shares, and that both the call and put options apply the same price calculation method, adding an amount equivalent to 5% annually based on a benchmark of 700,000 won per share.

Furthermore, dividends from Korea Zinc generated until the exercise of the call option accrue to Youngpoong. Youngpoong and MBK emphasize that the economic substance of the contract can only be judged by considering together the increase in option prices and accumulated dividends.

MBK stated that it has not yet exercised the call option and that exercise is not possible under the contract before recovering its investment in Korea Zinc. It explained that Youngpoong’s shares do not transfer to MBK simply because two years have passed since the completion of the tender offer, but rather that separate exercise conditions stipulated in the contract must be met.

Ultimately, this controversy is expanding beyond the difference between the call option exercise price and the existing acquisition cost into a question of which party benefited more from the design of contracts signed during the control dispute.

In particular, the background behind the change from the previous price calculation method linked to the tender offer price, the economic value of the put option and dividend rights secured by Youngpoong, and the board’s decision-making process at the time of the contract amendment are expected to become major issues in future legal judgments.

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*This content was translated by AI.View Original