When two longtime business partners established a subsidiary 50 years ago to produce zinc from an industrial complex set up by the South Korean government, they opted for an unusual distribution of power.
The new company, Korea Zinc, would be managed by the Choi family. The existing parent company, Young Poong, would be run by the family of the other founder, the Chang family. The two clans agreed to respect each other’s management. This arrangement became known as “two families under one roof.”
Korea Zinc has become the world’s largest producer of zinc and a vital cog in the South Korean economy.
But today, the relationship between the Chois and the Changs has broken down dramatically. The descendants of the two founders, who died several decades ago, are engaged in a fierce struggle for control of Korea Zinc.
The feud has broader implications for South Korea’s biggest companies, testing whether powerful family conglomerates, known as chaebols, can coexist with Western-style corporate governance. At the center of the battle is a company of great geopolitical importance, one of the few suppliers of essential metals to global supply chains without ties to China.
At a general meeting on Thursday, the Choi family will seek to retain management rights to Korea Zinc and fend off an attempted takeover of Young Poong, still controlled by the Chang family. Young Poong has his own zinc refining company as well as a chain of bookstores and electronic component manufacturers.
Young Poong has teamed up with MBK Partners, one of Asia’s largest private equity firms, in his bid to oust Korea Zinc Chairman Yun B. Choi, who is the founder’s grandson . The consortium accused Mr. Choi of being a poor manager, of making questionable investments and of not doing enough to keep the company competitive.
Korea Zinc said the Chang family’s takeover bid was an attempt by Young Poong to bolster its declining zinc business. It also fueled fears that Korea Zinc could fall into Chinese hands, due to the private equity fund’s ties to China through its investments.
This corporate drama is playing out at a delicate moment for South Korea. The president of the country, Yoon Suk Yeolwas deposed after declaring martial law last month. The political crisis has shaken the economy, weakened the currency and undermined business confidence.
Mr. Choi acknowledged that the corporate struggle could make some foreign investors wary of South Korea. “It’s definitely a chaotic environment,” he said.
The battle for control of Korea Zinc attacks a foundation of the country’s economy: the chaebols. Many chaebols are run by their founding families, supported by boards of directors that reliably align with their interests.
“This is the tip of the iceberg,” said Choi Sung-ho, a professor of financial and real estate asset management at Kyonggi University who is not related to the family involved in the litigation. “This signals to these large companies that such acquisitions are possible. »
The two families’ intertwined history dates back to 1949, when Chang Byung-hee and Choi Ki-ho founded Young Poong. It launched shipping, mining and trading operations before opening the country’s first facility to extract metallic zinc from ores. In 1974, it established Korea Zinc as a subsidiary.
The shared ownership arrangement lasted five decades. Both parties agreed to a contract stipulating that major decisions affecting the other’s property would require mutual consent.
According to Young Poong, Korea Zinc began violating that agreement when power transferred to Mr. Choi, a Columbia University-educated lawyer who worked at the New York law firm Cravath, Swaine & Moore. He oversaw the turnaround of Korea Zinc’s Australian operations before becoming chief executive in 2019 and chairman in 2022.
Young Poong said Mr Choi had taken steps to dilute the Chang family’s stake by issuing shares to companies friendly to Korea Zinc’s current management.
“I realized it was probably better to split up,” Mr. Choi told reporters this month.
The dispute quickly escalated. Young Poong opposed two of Korea Zinc’s proposals at last year’s general meeting. Korea Zinc declined to renew a long-standing business deal and took control of the board of directors of Sorin Corp., a joint sales and marketing subsidiary.
Preparing for a showdown, Young Poong teamed up with MBK Partners, a Seoul-based private equity fund that manages $31 billion of investors’ money.
MBK was founded by billionaire Michael ByungJu Kim, a US-educated South Korean financier who published a vaguely autobiographical novel in 2020 about a young banker who finds himself mixed up with powerful chaebol families.
MBK has a history of challenging South Korea’s corporate establishment, launching a takeover bid in 2023 to oust the chairman of Hankook, the parent company of South Korea’s largest tire maker. He failed to obtain a majority stake. In this case, MBK said he was recruited as a “white knight” by Young Poong.
In September, Young Poong and MBK announced a tender offer for Korea Zinc shares, sweetening their offer twice. Korea Zinc, which opposed the offer, responded by buying back some of its shares, but announced a week later that it planned to issue new shares to investors at a much lower price.
Its stock price fell, infuriating shareholders and attracting the attention of regulators concerned about the lack of disclosure. The company pulled the show.
After apologizing, Mr. Choi said he would step down as chairman after the shareholders’ meeting but would remain chief executive of Korea Zinc. He called the stock issue plan “not the wisest of decisions.”
Kim Kwang Il, an MBK associate who is leading the Korea Zinc deal, said Korea Zinc’s board was “trying to protect Chairman Choi’s control at the expense of all shareholders.”
At the shareholders’ meeting, each party proposes a list of directors. Young Poong and MBK hold 47 percent of the voting shares, compared with about 40 percent for Mr. Choi and his allies.
Korea Zinc hopes independent shareholders will choose its track record and continuity to ensure the company carries out projects such as opening a nickel refinery, the largest ever by a non-Chinese company, next year.
MBK and Young Poong said they were not interested in running Korea Zinc on a day-to-day basis. They plan to turn the company over to the current management, but not to Mr. Choi.
“A company cannot achieve stability or engage in proper management if the CEO does not have the trust of its largest shareholder,” said Chang Se-hwan, vice chairman of Young Poong and grandson of its founder.
The fight became fierce. MBK accused Mr. Choi of cronyism over a $380 million investment made by Korea Zinc in a private equity fund managed by his former classmate. Mr Choi said the investment produced “decent returns”.
Korea Zinc called the actions of Young Poong and MBK a “hostile takeover,” even though Young Poong has owned a third of the company for decades. Fears about China are at the heart of Korea Zinc’s defense.
In a December letter to the U.S. State Department, California Democratic Rep. Eric Swalwell expressed concerns that MBK could harm U.S. and South Korean efforts “to isolate and expand supply chains in critical minerals” of Chinese influence.
Robert O’Brien, national security adviser in the first Trump administration and now president of American Global Strategies, a consulting firm with foreign clients, issued a letter on Jan. 16 saying the buyout could enable Beijing to gain access to Korea Zinc and expand China’s influence. dominance in critical minerals. The letter was quickly promoted by Korea Zinc.
Mr. Kim, the MBK partner leading the deal, said the company’s Chinese investor represents about 5 percent of his fund. He declined to identify the investor, but said he had no influence. He called the concerns “totally unfounded.”
Mr Choi said he wanted a “more amicable” separation, but admitted it was difficult not to take the dispute personally.
“It’s important to me that it was my grandfather who founded the company and it was my father who dedicated his life to this company,” he said.
Mr Chang said he had “mixed feelings”. He respected and worked closely with Mr. Choi’s father, who was also an officiant at his wedding. However, he said he was concerned about the way Mr Choi was running the company.
“In Korea, it’s common for people to own 15 to 20 percent of a business and run it as if it were their individual asset,” he said. “As soon as you think like this, a business is doomed to failure. »