The power struggle over Korea Zinc Co. — founded by two friends who fled North Korea, and still held by the Choi and the Chang families — has captured headlines. Even in a country of large conglomerates, where inheritance fights are common, few involve private equity backers stepping into the ring to stand against wealthy establishment names.

Tensions have been running high for many months over strategy and spending, but they reached boiling point in September with a surprise takeover bid from the Chang family’s conglomerate, Young Poong Corp., and private equity outfit MBK Partners, since sweetened to value Korea Zinc at 15.5 trillion won ($11.6 billion). Multiple press briefings and campaigning newspaper advertisements have followed.

At this week’s London Metal Exchange gathering, one of the most important dates in the metals calendar, the tussle is already playing out in public, with Korea Zinc and Young Poong holding separate negotiations with suppliers and clients — a marked change after years of joint contract talks, according to people familiar with the matter. Both sides sent out messages to clients in advance, underlining their point of view and seeking support, said the people, who asked not to be named as the conversations are private.

The battle and its aftermath — come Friday’s tender deadline for the Young Poong and MBK offer — will have implications far beyond Korea. Including affiliates, the company accounts for 12% of the world’s zinc produced outside of China, 5% of its lead and around 9% of its silver, according to Bloomberg analysis using data from consultancy CRU Group.

Those are vital for efforts to limit Beijing’s metals dominance. 

Zinc is used to galvanize steel and as a coating to prevent rust on solar panels and wind turbines. There is also zinc-based battery technology, an alternative to lithium options. China is currently both the largest consumer and producer, accounting for roughly half of global refined output. 

“In a world where we’re getting geopolitical segmentation, Korea Zinc is the biggest provider of zinc to the non-China market and it’s also one of the world’s largest silver producers. So if you want solar panels, it’s very important to that supply chain,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets.

For suppliers and clients meeting in London his week, the question will be what any split could mean for sometimes decades-long agreements. A Young Poong email to suppliers last week sought to reassure them that these would be respected, whatever happens to the company’s ownership, according to three sources privy to the email. The sources declined to be identified as they were not authorized to discuss contract negotiations.

Korea Zinc, as part of its defense, has sought to warn of supply disruptions for South Korea’s key industries if MBK takes control. 

“If you’re trading zinc concentrates you have to have a contract with Korea Zinc,” said Howard Okumura, a zinc industry veteran, base metals marketing consultant and former marketing director at Teck Resources Ltd. “They’ve continually invested while everyone else stayed still.”

Barbarians at the Smelter

The saga is also a rare and audacious foray for private equity in Korea. MBK Partners — founded by a US-educated former banker and Carlyle Group dealmaker, billionaire Michael ByungJu Kim — has taken a bet at odds with the traditional playbook by embracing a cyclical business with Young Poong.

MBK has vowed to improve corporate governance at Korea Zinc, striking at the heart of the issue of transparency that has made global funds wary when investing in South Korea and encouraged a “Korea discount” for large conglomerates. In an interview to Bloomberg News on Monday, a top MBK official said the private equity firm was committed to the deal — and would even consider improving its offer to fend off any rival bid.

“Chaebol families now face a new challenge — growing generational conflict as these companies are passed down and face more aggressive calls from minority shareholders to improve corporate governance,” said Park Ju-gun, head of corporate research firm Leaders Index in Seoul. 

“MBK is clearly seeing opportunities to make money from these chaebol dramas, and we may see more of these deals if it succeeds in getting control of Korea Zinc.”

Korea Zinc has criticized the move as “predatory M&A.” The deal raises the risk that the firm could be torn to pieces and sold off to China, Korea Zinc Vice President K.J. Kim told Bloomberg, adding the concern has been echoed by others. MBK has said it has no plans to sell the business to Chinese companies and expects to hold on to the business for about a decade.

Family Drama

The power struggle dates back to the rise of Choi Yun-beom, who became chairman of the company just under two years ago, and immediately began ruffling feathers. 

The families had begun in business together in 1949, when Choi Ki-ho and Chang Byung-hee founded their holding company Young Poong. They built Young Poong into a sprawling conglomerate, setting up Korea Zinc in 1974. The two sides were intertwined through cross-shareholdings for over seven decades. 

Chang’s two sons, however, ended up with a bigger share over time as they maintained most of their stake within the family. The Choi family’s stake was divided among his five sons and got diluted.

Upon taking the helm in late 2022, Choi — who studied at Amherst and Columbia and is the co-founder’s grandson — proposed an overhaul. Korea Zinc had for decades focused mainly on its non-ferrous metals refining business. Choi wanted to bet the company’s future on green materials, investing heavily in clean power, electric vehicle batteries and recycling, while the rival faction was keen for it to maintain strong dividends.

He struck a series of agreements with South Korean conglomerates, including [hotlink]Hyundai Motor[/hotlink] Group, units of Hanwha Group, LG Chem Ltd, and commodities trader Trafigura Group, issuing new shares and raising funds to finance the new projects. 

The Changs, who collectively hold about 33% of Korea Zinc, saw an attempt by Choi to increase his influence by bringing in “friendly” investors. Young Poong has also criticized what the family says has been profligate spending on non-core investments by Choi.

That was the starting gun in a race to increase stakes and influence, while scuffling over detail. Before MBK backed Young Poong, the two factions were embroiled in at least two legal battles, including one over Korea Zinc’s decision to issue shares to Hyundai.

Senior Chang family members flew to London during early summer to meet with potential investors that could help their cause, fretting the Choi side had roped in big names like LG and Hanwha, according to people familiar with the matter.

The MBK-backed bid for control has prompted a rally in the stock to a record 747,000 won, but it has fallen back without breaching the 750,000-won-per-share improved offer level, indicating some skepticism among investors.