Korea Zinc's headquarters located in central Seoul (Newsis)

The fight for management control of Korea Zinc, the world’s largest zinc smelter, has escalated into a game of chicken worth over 5 trillion won ($3.7 billion). As the bidding war heats up, its would-be controllers are at risk of falling prey to a “winner’s curse.”

On Friday, the last day of the initial tender offer period launched by private equity fund MBK Partners and Young Poong, the biggest shareholder of Korea Zinc, the coalition raised its offer to 830,000 won per share, matching the counteroffer presented by Korea Zinc Chairman Choi Yun-beom a few days before.

“The price has been raised by 10.7 percent from 750,000 won to 830,000 won. The seven-percent minimum purchase requirement has been eliminated too,” MBK announced Friday. With the raised price, MBK Partners and Young Poong could pay up to 2.5 trillion won for the Korea Zinc tender offer.

The announcement came shortly after Korea Zinc announced it would repurchase its shares at the price of 830,000 won on Oct. 2. The buyback plan, backed by US private investment firm Bain Capital, could cost up to 3.1 trillion won.

With the raised bets, shares of Korea Zinc and related companies have soared. Korea Zinc closed at 776,000 won per share on Friday, up 8.84 percent from the previous trading day. It reached a 52-week high of 791,000 won during intraday trading.

Shares of Young Poong Precision, a Korea Zinc affiliate, also hit a 52-week high of 32,850 won, gaining 25.15 percent for the day. It eventually closed at 31,850 won.

The industrial pump and chemical plant valve maker is expected to play a key role in the management dispute, as it holds a 1.85 percent stake in Korea Zinc. Both MBK-Young Poong and Korea Zinc have offered 30,000 won for shares of the company.

While both parties are ready to execute a total of over 5 trillion won to gain control of Korea Zinc, they could be exposed to the “winner’s curse,” referring to the tendency for the winner of an auction to pay more than an asset is worth.

Even if MBK wins the fight, the private equity house is likely to make a smaller profit when exiting the position, as the acquisition could cost more than expected.

The tender offer is a burden on Korea Zinc as well. It could become strapped for cash as it holds onto 2.7 trillion won in short-term borrowing, including corporate bonds and commercial paper.

With the MBK-Young Poong alliance changing the terms of the tender offer, the bid has been extended to Oct. 14. Korea Zinc’s tender offer will last until Oct. 23.