Detained CEOs and Unfavorable Call Option Terms… Doubts Surrounding the Decision-Making Process of Youngpoong and MBK

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Questions have been raised regarding the decision-making process behind the management cooperation agreement that Youngpoong signed with MBK Partners in September 2024. As contract terms potentially unfavorable to Youngpoong, such as the exercise of voting rights on Youngpoong’s held shares of Korea Zinc and call options, have come to light, voices are calling for clarification on who actually led the negotiations and determined the key terms.

Particular attention is being paid to the actual decision-making structure at the time, given that both of Youngpoong’s inside directors were in custody when the contract was signed. There are also points noting that it must be examined to what extent Jang Hyeong-jin, a senior advisor at Youngpoong and a party to the contract, was involved in determining key terms and the negotiation process.

According to the Financial Supervisory Service’s electronic disclosure system (DART), Youngpoong held a board of directors meeting on September 12, 2024, and approved the “Tender Offer for Korea Zinc Shares and Execution of the Basic Agreement with Korea Zinc.”

At the time, the board consisted of a total of five members: two inside directors and three independent directors. However, Park Young-min and Bae Sang-yoon, the then-CEOs who were inside directors, could not attend the meeting. The agenda was resolved with only the attendance of the three independent directors: Park Byung-wook, Park Jeong-ok, and Choi Chang-won. At a board meeting held on the 25th of the same month, the “Amendment to the Basic Agreement” was also approved with only the three independent directors in attendance.

In its business report, Youngpoong recorded the reason for the two CEOs’ absence from the board as “detention.” They were under arrest in connection with a worker death accident that occurred at Youngpoong’s Seokpo Smelter.

In December 2023, an accident occurred at the Seokpo Smelter in which four workers suffered acute arsenic poisoning while replacing the motor of a tank used to store impurities generated during the refining process. The workers were hospitalized with symptoms such as abdominal pain and difficulty breathing, and one of them died.

The Andong District Office of the Daegu District Prosecutors’ Office indicted Park Young-min, the then-CEO, for violating the Act on Punishing Major Industrial Accidents, and Bae Sang-yoon, the then-CEO and head of the Seokpo Smelter, for violations including the Occupational Safety and Health Act, on September 23, 2024.

The issue is how a significant contract related to control over Korea Zinc was concluded while all the CEOs responsible for company management were in custody. While the directors who approved the contract can be identified through public disclosures, it is a separate matter of who proposed the contract terms and whose judgment was reflected during the negotiation process.

Attention is also being paid to Senior Advisor Jang Hyeong-jin in this process. Senior Advisor Jang, the head of the Youngpoong business group, listed his name as a party to the management cooperation agreement alongside Youngpoong and MBK Partners. Some point out that it is necessary to verify whether Senior Advisor Jang was involved in determining contract terms or the negotiation process, given that the two CEOs were detained and thus unable to carry out management activities. However, it has not been confirmed that Senior Advisor Jang actually led the negotiations or decided on specific terms.

These questions are growing larger as the specific terms of the contract become known. According to legal circles and the securities industry, details of the management cooperation agreement were revealed after a document submission order by the court was finalized. The contract reportedly includes provisions for Youngpoong to exercise voting rights on its held shares of Korea Zinc jointly with MBK, and to grant the MBK side call options to purchase those shares.

In particular, controversy has arisen over the terms of the call option. According to known contract details, 2,570,901 shares of Korea Zinc held by Youngpoong were designated as the subject of the call option. The exercise price is reported to be 700,000 won per share plus an annual interest rate of 5%.

Some in the investment banking industry analyze that if the stock price of Korea Zinc remains at a level higher than the call option exercise price, Youngpoong may dispose of its held shares under terms less favorable than selling them directly on the market.

Consequently, whether Youngpoong’s board of directors sufficiently examined potential financial risks to the company during the contract approval process has also emerged as an issue. Legal circles explain that since directors bear a duty of care and a duty of loyalty to the company, contracts that could have a significant impact on the company’s assets must be reviewed based on reasonable grounds and appropriate procedures.

Ultimately, the core issue is what materials the independent directors at the time relied on to examine contract terms and potential risks, and who was involved in the negotiation and determination of key terms. Since the fact of board resolution alone makes it difficult to grasp the actual decision-making process before the contract was signed, there are points noting that the roles of the parties to the contract, including Senior Advisor Jang, and the board’s review procedures must be verified.

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*This content was translated by AI.View Original