Will Hanwha Participate in Defending Korea Zinc's Management Control? Legal Risks Under Scrutiny

The upcoming expiration of Korea Zinc's tender offer on the 4th of next month has raised speculation over whether Hanwha Group will participate in a counter-tender offer in the capital market.

With expectations of a defensive move to counter the alliance between MBK Partners and Young Poong, there is talk of potential support from Hanwha Energy.

Hanwha Group has denied the rumors, stating they are "groundless," but the market is speculating that Korea Zinc's 400 billion KRW worth of commercial paper (CP) issuance may be used as funding for a counter-tender offer.

There are scenarios suggesting that Hanwha Energy may invest this capital into a special purpose company (SPC) to counter the MBK-Young Poong alliance's offensive.

Korea Zinc explained that the purpose of the CP issuance was to secure working capital, but the market is interpreting it as ammunition for defending management control.

Particularly, this CP issuance is notable as it is the first time in 23 years that Korea Zinc has raised funds through borrowing, making the timing quite unusual.

The legal community has expressed concerns that such a transaction structure could lead to breach of fiduciary duty.

If Korea Zinc offers a higher amount than the 750,000 KRW per share proposed by the MBK-Young Poong alliance, there is a high possibility that the stock price will drop by about 30% after the tender offer ends, potentially resulting in an evaluation loss amounting to billions of KRW.

Thus, some argue that there is no justification for such actions other than taking over management control.

Hanwha Energy is a company wholly owned by the three Kim brothers—Dong-Kwan, Dong-Won, and Dong-Seon—and therefore carries less burden regarding the potential destruction of shareholder value compared to other affiliates within the Hanwha Group.

However, the legal community states that even if all shareholders agree, if Hanwha Energy proceeds with such a transaction that damages the company's value, it could be considered a breach of fiduciary duty.

Meanwhile, there is also talk of Korea Zinc Chairman Choi Yoon-bum stepping down from management and Hanwha Group incorporating Korea Zinc as an affiliate.

However, this could lead to a circular shareholding issue between Hanwha Group and Korea Zinc.

Hanwha Group is a conglomerate with assets exceeding 10 trillion KRW, which falls under the category of a restricted mutual investment group, and according to the Fair Trade Act, circular shareholding between affiliates is prohibited.

Considering that Korea Zinc holds a 7.25% stake in Hanwha Corporation, if Hanwha's affiliates acquire Korea Zinc, a circular shareholding issue could arise.

Regarding these speculations, a Hanwha Group official stated, "The contents currently being discussed are entirely groundless."

On the other hand, once the management dispute is settled, Korea Zinc's stock price is likely to return to the pre-tender offer level of around 500,000 KRW, drawing attention to the stock price volatility.