Youngpoong Corporation and MBK clash over '700,000-won call option' as contract amendment process becomes key issue

[The Financial News] Controversy over the price of the call option (right to purchase shares) in the management cooperation agreement between Youngpoong Corporation and MBK Partners has widened to include the circumstances surrounding the contract amendment and questions about decision-making by Youngpoong Corporation's board. Youngpoong Corporation and MBK Partners maintain that the gain or loss cannot be assessed based on the reference price alone, given the annual 5% increment and the put option (right to sell shares), among other terms. But KZ Precision, a shareholder of Youngpoong Corporation, has filed a shareholder derivative suit, arguing that the agreement was made on terms unfavorable to the company.
According to industry sources on the 19th, Youngpoong Corporation, adviser Jang Hyeongjin and Korea Corporate Investment Holdings, a special-purpose entity on MBK Partners' side, signed an agreement in September 2024 linking the call-option price to the tender offer price. However, the terms were reportedly changed in an amended agreement on the 25th of the same month, to 700,000 won per share with an annual 5% increment.
In 2024, the tender offer price for Korea Zinc was raised from 660,000 won to 750,000 won on September 26, and then to 830,000 won on October 4. Although the tender offer price was raised twice, the call-option reference price remained at 700,000 won.
Applying the difference between the final tender offer price of 830,000 won and the reference price of 700,000 won to the 2,444,546 Korea Zinc shares covered by the call option yields approximately 317.8 billion won. However, this is a simple difference that does not account for the annual increment or dividends, among other factors, and does not represent Youngpoong Corporation's actual loss.
In a rebuttal issued that day, Youngpoong Corporation and MBK Partners said the amount payable upon exercising the option increases by 35,000 won per share each year, and that Youngpoong Corporation also holds a put option with the same pricing terms. They said the call option has not yet been exercised and cannot be exercised before MBK recoups its investment in Korea Zinc.
The issue is whether these contractual terms serve Youngpoong Corporation's economic interests, among other considerations. The put option and annual increment are mechanisms that reduce the risk of losses for Youngpoong Corporation if the share price falls. On the other hand, if the share price rises, there is also a possibility that it may have to transfer its stake for less than the market price. Assessing whether the agreement is favorable or unfavorable requires a comprehensive review of the option exercise conditions, pricing method and other factors.
Legal disputes over the agreement are also ongoing. KZ Precision previously filed a shareholder derivative suit, arguing that Youngpoong Corporation's management had entered into an agreement unfavorable to the company. Last August, the Supreme Court dismissed, without further review, a further appeal by adviser Jang's side. As a result, the order to produce documents concerning the management cooperation agreement and subsequent contracts became final.
An industry source said, "In the litigation ahead, issues will include what economic terms Youngpoong Corporation's board reviewed when the agreement was amended."
[email protected] Kim Mi-hee Reporter