For months, the fight for management control of Korea Zinc, a leading metals producer, between its two founding families seemed headed for a dramatic showdown at a shareholder meeting.
But instead of a conclusion, the meeting on Thursday launched what could be a prolonged legal battle after a last-minute stock maneuver by Korea Zinc’s chairman, Yun B. Choi.
Mr. Choi, and his family, took steps on Wednesday to invalidate votes held by Korea Zinc’s largest shareholder, the conglomerate Young Poong, which was seeking to oust him from running the company.
It was the latest twist in the bitter monthslong dispute between the Choi and Chang families, whose deceased patriarchs founded Korea Zinc 50 years ago. The Chois currently manage Korea Zinc day to day and the Changs control Young Poong.
The feud has become a test of the resilience of South Korea’s powerful family-run conglomerates known as chaebols in the face of Western-style corporate governance.
It has the added element of a deep-pocketed private equity firm, Seoul-based MBK Partners, looking to profit from upending the status quo in South Korea. And Korea Zinc carries a great deal of geopolitical significance, as one of the few major suppliers of metals critical to global supply chains without ties to China.
The dispute officially started in September when Young Poong, which runs its own zinc smelting business as well as a bookstore chain and electronics component makers, joined forces with MBK to acquire enough shares to take control of Korea Zinc’s board of directors.
But after the two sides jostled to lock up as much of Korea Zinc’s shares as possible, the consortium of Young Poong and MBK appeared to be in a stronger position heading into the meeting on Thursday.
They had secured roughly 47 percent of Korea Zinc’s voting shares versus about 40 percent for the Choi family and its allies. On Tuesday, a South Korean court sided with Young Poong and MBK by blocking a proposal to change how votes for board directors would be tallied at the upcoming meeting. The voting system, if it had not been stopped by the court, would have made it difficult for the consortium to appoint their preferred slate of directors.
On Wednesday, Korea Zinc erected a last-minute roadblock. It announced that Sun Metals Corp., an Australian subsidiary, bought a 10 percent stake in Young Poong from the Choi family and another subsidiary.
Korea Zinc said this transaction created a so-called circular ownership structure because one of its subsidiaries owned more than 10 percent of Young Poong and Young Poong owned more than 10 percent of Korea Zinc. Citing South Korean law, Korea Zinc claimed Young Poong’s voting rights were invalidated under that structure.
In a statement on Wednesday, the Choi family and the Korea Zinc subsidiary said the sale of Young Poong shares was “the best course of action for the South Korean economy” as well as the right choice for Korea Zinc’s long-term interests.
Korea Zinc said the transaction had “legal validity.”
Young Poong and MBK said in a joint statement that the scheme was “merely a stopgap and an illegal act to avoid losing in today’s shareholder vote.”
“We will pursue all necessary measures to nullify the illegal outcomes of the meeting and restore proper governance through lawful procedures,” they said in the statement. A spokesman from MBK said earlier they would fight the cause in the courts.
Mike Cho, a professor at Korea University’s business school, said South Korean antitrust law prohibits cross shareholding arrangements like the one created by Korea Zinc through the Choi family’s sale of Young Poong shares. He said Korea Zinc may be subject to fines if it is found to have violated the law.
Mr. Cho said any case challenging Korea Zinc’s move would come down to whether Sun Metals is deemed a South Korean company because the law applies only to domestic companies. If it is considered a foreign company, then Young Poong would have a strong case to regain its voting rights.
The meeting on Thursday, at a hotel in Seoul, was adorned in additional drama. When shareholders gathered, they were confronted by a protest from Korea Zinc’s labor union threatening to strike if Young Poong and MBK gained management control. The start of the meeting was delayed five hours because of delays in verifying voters, Korea Zinc said.
When the session finally started, Korea Zinc confirmed that Young Poong’s votes would be voided. A Young Poong representative said he felt “robbed,” according to a local media report.
Without Young Poong’s vote, shareholders approved Korea Zinc management’s proposals. The changes to how votes for board directors are counted will go into place at its next shareholder meeting, Korea Zinc said. Shareholders also sided with management capping the size of the board at 19 members, meaning that Mr. Choi’s board allies will still retain majority.
At the end of a long day, Mr. Choi and his family retained management control of Korea Zinc, but the feud is likely to continue.
