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Korea Zinc Chairman Choi Yun-beom speaks at a press conference held at a hotel in central Seoul, Oct. 2. (Yonhap) |
While Korea Zinc has secured the support of US private equity giant Bain Capital amid a battle for management control of the company, market watchers suggest its backing could eventually cost the troubled zinc smelter a hefty amount.
To thwart the takeover attempt from the MBK Partners-Young Poong alliance, the current management of Korea Zinc has teamed up with Bain Capital, a big-name investment company with over $185 billion (250 trillion won) in assets under management.
Under Chairman Choi Yun-beom, Korea Zinc will put in around 2.7 trillion won to buy back treasury stocks to acquire an additional 15.5 percent stake in the company. Bain Capital will back up the attempt by allocating 430 billion won for a separate tender offer to secure a 2.5 percent stake.
“Bain Capital is a financial investor who will not be involved in the management of Korea Zinc and its board. It also firmly supports the current management’s push for growth drivers such as the Troika Drive with trust,” Choi said at a press conference on Oct. 2. Troika Drive refers to Korea Zinc spearheading its transition to environmentally friendly resources.
Bain Capital has set up a special situation fund under the name Troika Drive Investment to finance the deal. It is to pool 70 billion won from its own pocket and fund 360 billion won from a loan from Korea Investment.
Though it had been rumored that Choi had been negotiating funding options with local conglomerates such as Hanwha and LG, and global buyout funds including Kolberg Kravis Robert, Choi partnered with Bain Capital’s credit fund.
Buyout funds typically seek to gain a controlling or majority ownership of a company, while credit funds generate income by investing in loans.
“It could have been difficult for Choi to team up with a buyout fund, as the fund would not be interested in an investment that does not entail the management control of a company,” an official from a local private equity firm said.
Further speculation is that the Choi family’s stake in Korea Zinc could have been offered as collateral to Bain Capital as credit funds require credit reinforcement to execute investments. Agreements concerning the joint execution of voting rights from shares and restrictions on the transfer of shares are rumored to be on the table.
“Choi probably presented appealing options for Bain Capital, such as promising to acquire the stake back at a higher price at a certain time,” the official said. “Though the terms of the deal were not disclosed, the options must have been attractive for Bain Capital to step in the middle of such a mud fight.”
