Court Filing Reveals Youngpoong Granted MBK Call Option on Korea Zinc Shares Below Market Price
Details of the Youngpoong-MBK management agreement expose a low-price call option on Korea Zinc shares, raising concerns about director liability and shareholder value.
According to reports by ZDNet Korea and Financial News, documents submitted by Youngpoong to a South Korean court reveal that its 2024 management cooperation agreement with MBK Partners included a significant clause: MBK's subsidiary, Korea Enterprise Investment Holdings, holds a call option to purchase 2,570,091 shares of Korea Zinc held by Youngpoong at a price of 700,000 KRW per share plus 5% annual interest.
The conditions for exercising this option have become a central point of contention. The disclosed terms set the reference date as either two years after the completion of the tender offer or the day when directors nominated by Youngpoong/MBK secure a majority on the Korea Zinc board, whichever comes first. Once triggered, MBK can demand the sale of all or part of the target shares within three months. Since the tender offer was completed in 2024, the option theoretically became exercisable after October 17, 2026. However, MBK has stated it will not exercise the right before recovering its investment in Korea Zinc.
Market attention focuses on the potential loss arising from the price discrepancy. Korea Zinc's recent share price has fluctuated between 836,000 and 1,430,000 KRW, significantly higher than the 700,000 KRW base price. With the current price around 850,000 KRW, adding 5% simple interest brings the effective strike price to approximately 770,000 KRW, still below market levels. Analysts note that exercising the option now could result in hundreds of billions of KRW in book losses for Youngpoong. While the actual loss depends on the share price at the time of exercise, accumulated interest, and transaction volume, the clause has raised questions about whether Youngpoong's management harmed shareholder interests.
Legal experts suggest that even if the option has not yet been exercised, creating a specific risk of property loss to the company at the time of signing could constitute a breach of fiduciary duty by directors. Currently, minority shareholder KZ Precision has filed a derivative lawsuit alleging that Youngpoong's directors violated their trust obligations. Youngpoong and MBK argue that dividends received during the holding period belong to Youngpoong, and the exercise price increases over time due to accrued interest; for instance, if exercised ten years later, the price would exceed 1 million KRW per share.