US president's decision to block Japanese company’s acquisition of US Steel due to national security concerns leads to second thoughts
Equity fund firm MBK Partners’ bid to take over Korea Zinc has persistently heightened concerns about the leakage of national core technologies that the world's largest zinc smelter holds.
With MBK, in partnership with Young Poong, Korea Zinc's largest shareholder, having been raising the ante to obtain the management rights of Korea Zinc in a monthslong battle with the firm’s management, debates on whether the government should turn a blind eye on the attempt have reignited following US President Joe Biden’s decision to block the high-profile acquisition of United States Steel by Japan’s Nippon Steel last week.
On Jan. 3, Biden blocked the $14.3 billion takeover bid by Nippon Steel, citing risks to national security.
“A strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains,” he said in a statement.
Biden’s hardline against the foreign control of a once key component of US industry was evidence of growing protectionism globally on national security grounds.
Korea Zinc Chairman Choi Yun-beom believes that the company would have a bleak future if the Young Poong and MBK alliance gain management control of the firm as their interest would be raising short-term profits than promoting its long-term growth.
"It contradicts Young Poong operating the business of Korea Zinc," Choi said in an interview with a local media on Thursday ahead of the company's extraordinary shareholders' meeting on Jan. 23 to vote on the appointment of new board members recommended by Young Poong.
The Young Poong-MBK alliance now controls 39.83 percent of Korea Zinc, while Choi and related parties own 35.4 percent of the company.
Echoing Choi's concern, Korean lawmakers were wary of MBK’s possible sell-off of Korea Zinc to a foreign capital after acquiring a stake in the metal smelter.
At the National Assembly's audit in October last year, MBK Vice Chairman Kim Kwang-il was summoned and grilled by lawmakers of both the ruling and opposition parties due to concerns about its aggressive acquisition bid against Korea Zinc.
Rep. Lee Hun-seung of the ruling People's Power Party questioned the credibility of MBK’s key characteristics as a private equity fund that buys companies at low prices and takes out dividends before offloading the asset, citing its previous portfolio firms like insurer ING Life Insurance, hypermarket chain Homeplus and fried chicken brand BHC.
“Korea Zinc is the world's No. 1 company in the non-ferrous metal sector with annual sales of 10 trillion won and operating profit of approximately 1 trillion won. On the other hand, Young Poong has been logging operating losses for 10 years. It doesn't make sense that such a loss-making company and an equity fund are working together to acquire (Korea Zinc) in the name of normalizing management,” he said.
Rep. Park Sang-hyuk of the main opposition Democratic Party of Korea pointed out that MBK initially said it would not increase the tender offer price for Korea Zinc from 660,000 won per share but later raised it to 830,000 won amid intensifying competition for management control.
Over accusations that MBK has strong ties with Chinese capital, the private equity company said it would not sell Korea Zinc to Chinese capital and that Chinese capital accounts for some 5 percent of its funds raised from a pool of investors used for the tender offer.
However, as Korea Zinc’s market capitalization now surpasses 20 trillion won, there have been constant rumors in the market that a large-scale Chinese investor would only be able to handle the hefty price tag.
Meanwhile, Korea Zinc has been working on winning government recognition over its technology in a bid to fend off the acquisition attempt.
On Nov. 18, the Korean government decided to designate Korea Zinc's technology for producing lithium-ion battery material as a core national technology. Companies recognized as having national core technologies can be acquired by foreign companies only with government approval.
Korea Zinc selected the secondary battery materials business as one of the new growth engines that can create synergy with its existing smelting business. In 2022, affiliate Kemco and LG Chem jointly established Korea Precursor Co. and completed a precursor production plant with an annual capacity of 20,000 tons in March last year.
In order to reduce the 97 percent dependence on Chinese precursors and secure the country's own supply chain, the construction of an all-in-one nickel smelter broke ground in Ulsan in November 2023. Once the nickel smelter is completed, it can produce from nickel sulfate to cobalt sulfate precursors.
The company also applied to the Ministry of Trade, Industry and Energy to designate its hematite and antimony metal manufacturing technology as national core technologies.
On Thursday, the chance of governmental intervention in MBK's acquisition of Korea Zinc heightened as the National Assembly Research Service said that the country’s Industry Ministry may needs to look into whether the private equity fund’s bid could be deemed a foreign investment under related laws.
“Although the MBK alliance consists of all domestic firms, the Ministry of Trade, Industry and Energy needs to confirm the facts as to whether the case should be considered a foreign investment, given that the major shareholders of MBK are known to be foreign nationals,” it said.
MBK Chair Michael Byung-ju Kim, who is a US citizen of South Korean origin, holds a 17 percent stake in his firm while New York-based Dyal Capital Partners holds a 16.2 percent stake.
