For months, the battle for management control of Korea Zinc, a prominent metals producer, between its two founding families appeared to be heading towards a significant confrontation at a shareholder meeting.
However, the meeting on Thursday instead initiated what could become an extended legal conflict following a last-minute stock maneuver by Korea Zinc's chairman, Yun B. Choi.
On Wednesday, Mr. Choi and his family took actions to invalidate votes from Korea Zinc's largest shareholder, the conglomerate Young Poong, which was attempting to remove him from his position.
This development marks the latest chapter in the ongoing dispute between the Choi and Chang families, whose late patriarchs established Korea Zinc 50 years ago. The Choi family currently manages day-to-day operations, while the Chang family oversees Young Poong.
The conflict has tested the resilience of South Korea's influential family-run conglomerates, known as chaebols, against Western-style corporate governance.
Additionally, a private equity firm, MBK Partners, based in Seoul, is looking to capitalize on the situation by disrupting the existing management structure. Korea Zinc holds significant geopolitical importance as one of the few major suppliers of metals essential to global supply chains that are not linked to China.
The dispute began in September when Young Poong, which operates a zinc smelting business alongside other ventures, allied with MBK to acquire enough shares to control Korea Zinc's board.
As the two factions competed to secure shares, the Young Poong and MBK consortium appeared to be in a stronger position before the meeting, holding approximately 47 percent of the voting shares compared to about 40 percent for the Choi family and its allies.
A South Korean court sided with Young Poong and MBK on Tuesday, blocking a proposal that would have complicated the voting process for board director elections at the upcoming meeting.
In a last-minute move, Korea Zinc announced on Wednesday that its Australian subsidiary, Sun Metals Corp., purchased a 10 percent stake in Young Poong from the Choi family. This transaction was claimed to create a circular ownership structure, leading Korea Zinc to assert that Young Poong's voting rights were invalidated under South Korean law.
The Choi family stated that the sale of Young Poong shares was beneficial for the South Korean economy and aligned with Korea Zinc's long-term interests, asserting the transaction's legal validity.
In response, Young Poong and MBK described the maneuver as an illegal attempt to circumvent a loss in the shareholder vote, pledging to take necessary legal actions to nullify the meeting's outcomes and restore proper governance.
Mike Cho, a professor at Korea University's business school, noted that South Korean antitrust law prohibits such cross-shareholding arrangements. He indicated that Korea Zinc could face fines if found in violation of the law, depending on whether Sun Metals is classified as a South Korean company.
The meeting, held in Seoul, was marked by additional tension, including a protest from Korea Zinc's labor union, which threatened to strike if management control shifted to Young Poong and MBK. The meeting was delayed for five hours due to complications in voter verification.
Once the meeting commenced, Korea Zinc confirmed the invalidation of Young Poong's votes. A representative from Young Poong expressed feelings of being "robbed," according to local media.
With Young Poong's votes voided, shareholders approved proposals from Korea Zinc's management, including new voting procedures for board directors that will be implemented at the next shareholder meeting. Additionally, shareholders supported a cap on the board size at 19 members, allowing Mr. Choi's allies to maintain a majority.
Ultimately, Mr. Choi and his family retained control of Korea Zinc, but the ongoing feud is expected to persist.