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 found themselves in an unusual division of power.
The new venture, Korea Zinc, would be managed by the Choi family. The existing parent company, Young Poong, would be run by the founder’s other family, the Chang family. Both clans agreed to respect each other’s management. The arrangement became known as “two families under one roof”.
Korea Zinc went on to become the world’s largest zinc producer and an essential cog in South Korea’s economy.
But now the relationship between the Chois and the Changs has broken down dramatically. Descendants of the two founders, who died decades ago, are engaged in a bare-knuckle struggle for control of Korea Zinc.
The dispute has wider implications for South Korea’s biggest companies, testing whether powerful family-run conglomerates, known as chaebols, can coexist with Western-style corporate governance. At the center of the battle is a geopolitically important company, one of the few suppliers of critical metals to global supply chains without ties to China.
At a shareholder meeting on Thursday, the Choi family will seek to retain management rights for Korea Zinc and fend off a takeover attempt by Young Poong, still controlled by the Chang family. Young Poong has his own zinc processing business, as well as a chain of bookstores and electronic component manufacturers.
Young Poong has partnered with MBK Partners, one of Asia’s largest private equity firms, in its bid to oust Korea Zinc chairman Choi Yun-beom, who is the nephew of the founder. The consortium has accused Mr Choi of being a poor manager, making questionable investments and not doing enough to keep the company competitive.
Korea Zinc has said the Chang family’s takeover bid is an attempt by Young Poong to strengthen its zinc operations. It has also fueled concerns that Korea’s zinc could fall into Chinese hands, because of the private equity fund’s ties to China through its investments.
The corporate drama is playing out at a delicate time for South Korea. The country’s president, Yoon Suk Yeol, was blamed after declaring martial law last month. The political crisis has shaken the economy, damaged the currency and damaged business confidence.
Mr. Choi acknowledged that the corporate fight could make some foreign investors wary of South Korea. “It’s definitely a chaotic environment,” he said.
Battle for control of Korea Zinc strikes at a foundation of the country’s economy: the kaebolin. Many chaebol are run by their founding families, supported by corporate boards that reliably fall in line with their interests.
“This is the tip of the iceberg,” said Choi Sung-ho, a professor of financial and real estate management at Kyonggi University who is not related to the family involved in the dispute. “It signals to these big companies that such acquisitions are possible.”
The intertwined history of the two families begins in 1949, when Chang Byung-hee and Choi Ki-ho started Young Poong. It started shipping, mining and trading businesses before opening the country’s first zinc metal extraction facility. In 1974, it established Korea Zinc as a subsidiary.
The ownership sharing agreement lasted for five decades. Both parties agreed to a contract that stipulated that major decisions affecting the other’s ownership would require mutual consent.
According to Young Poong, Korea Zinc began to violate this agreement when power was 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 operations in Australia before becoming chief executive in 2019 and chairman in 2022.
Young Poong said Mr. Choi took steps to dilute the Chang family’s stake by issuing shares to companies friendly to Korea Zinc’s current management.
“I realized that maybe it was 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 shareholder meeting. Korea Zinc refused to renew a long-standing business agreement and took board control of Sorin Corp., a jointly owned sales and marketing subsidiary.
Preparing for a showdown, Young Poong partnered with MBK Partners, a Seoul-based private equity fund that manages $31 billion in investor money.
MBK was founded by billionaire Michael ByungJu Kim, a South Korean-born, US-educated financier who published a loose autobiographical novel in 2020 about a young banker who becomes involved with powerful chaebol families.
MBK has a history of challenging the South Korean corporate establishment, launching a takeover bid in 2023 to oust the chairman of Hankook, the parent company of South Korea’s biggest tire maker. It failed to secure a controlling stake. In this case, MBK said he was treated as a “white knight” by Young Poong.
In September, Young Poong and MBK announced a tender offer for Korea Zinc shares, sweetening its bid twice in the process. Korea Zinc, which opposed the offer, countered by buying back some of its own shares, but a week later announced plans to issue new shares to investors at a much lower price.
Its stock price fell, angering shareholders and drawing the attention of regulators worried about the lack of disclosure. The company withdrew the release.
After apologizing, Mr. Choi said he would step down as chairman after the shareholders’ meeting, but will remain Korea Zinc’s chief executive. He called the recovery plan “not the wisest of decisions.”
A partner at MBK leading the Korea Zinc deal, Kim Kwang Il, said the Korea Zinc board was “trying to protect Chairman Choi’s control at the cost 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 to 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 plans such as opening a nickel refinery, the largest by a non-Chinese company, next year.
MBK and Young Poong said they were not interested in running Zinc Korea on a day-to-day basis. They plan to hand the company over to the current executives, but not Mr. Choi.
“A company cannot achieve stability or engage in proper management if the CEO lacks the trust of its largest shareholder,” said Chang Se-hwan, vice chairman of Young Poong and grandson of its founder.
The war has become fierce. MBK has accused Mr. Choi for friendship over a $380 million investment made by Korea Zinc in a private equity fund run by his old classmate. Mr Choi said the investment was producing “good returns”.
Korea Zinc has called the actions of Young Poong and MBK a “hostile takeover”, even though Young Poong has owned a third of the company for decades. Fear of China is central to the defense of Zinc Korea.
In a December letter to the US State Department, Representative Eric Swalwell, a Democrat from California, expressed concerns that MBK could undermine US and South Korean efforts “to insulate and expand supply chains of critical minerals” from Chinese influence.
Robert O’Brien, a national security adviser during the first Trump administration who is now chairman of American Global Strategies, an advisory firm with overseas clients, issued a letter on Jan. 16 saying the takeover could ‘allowed Beijing access to Zinc Korea and to expand China. dominance in critical minerals. The paper was quickly promoted by Korea Zinc.
Mr. Kim, the MBK partner leading the deal, said the firm’s Chinese investor accounts for about 5 percent of its fund. He declined to identify the investor but said they had no influence. He called the concerns “totally unfounded.”
Mr Choi said he wanted a “more amicable” split but admitted it was difficult not to take the dispute personally.
“It is important to me that it was my grandfather who founded the company and it was my father who gave 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 also served as an officiant at his wedding. However, he said he was concerned with how Mr. Choi ran the company.
“In Korea, it is common practice for people to own 15 to 20 percent of a company and run it as if it were their individual asset,” he said. “The moment you think that way, a company is destined for failure.”
