Fifty years ago, when two longtime business partners set up a subsidiary to make zinc out of an industrial complex set up by the South Korean government, they struck an unusual division of power.
The new company, Korea Zinc, would be managed by the Choi family. The existing parent company, Young Poong, would be run by the household of the other founder, the Chang family. Both clans agreed to respect each other's management. The arrangement became known as 'two families under one roof'.
Korea Zinc grew into the world's largest zinc producer and a vital cog of the South Korean economy.
But now the relationship between the Chois and the Changs has dramatically broken down. The descendants of the two founders, who died decades ago, are locked in a naked battle for control of Korea Zinc.
The feud has broader implications for South Korea's biggest companies, testing whether the powerful family conglomerates known as chaebols can coexist with Western-style corporate governance. At the center of the battle is a company of great geopolitical significance, one of the few suppliers of metals crucial to global supply chains without ties to China.
At a shareholders meeting on Thursday, the Choi family will try 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 its own zinc refinery, a bookstore chain and electronics component manufacturers.
Young Poong is teaming up with MBK Partners, one of Asia's largest private equity firms, in an effort to oust Korea Zinc chairman Yun B. Choi, the founder's grandson. The consortium has accused Mr Choi of being a poor manager, making questionable investments and not doing enough to maintain the company's competitive position.
Korea Zinc has said the Chang family's takeover bid is an attempt by Young Poong to strengthen its weak zinc business. It has also fueled concerns that Korea Zinc could fall into Chinese hands, due to the private equity fund's ties to China through its investments.
The corporate drama takes place at a delicate time for South Korea. The country's president, Yoon Suk Yeol, was ousted after declaring martial law last month. The political crisis has roiled the economy, undermined the currency and damaged business confidence.
Mr. Choi acknowledged that the corporate battle could make some foreign investors wary of South Korea. “It's definitely a chaotic environment,” he said.
The battle for control of Korea Zink touches a foundation of the country's economy: the chaebol. Many chaebols are led by their founding families, supported by boards of directors that reliably represent their interests.
“This is the tip of the iceberg,” said Choi Sung-ho, a professor of finance and real estate management at Kyonggi University, who has no ties to the family involved in the dispute. “It is a signal for these large companies that such acquisitions are possible.”
The intertwined history of the two families dates back to 1949, when Chang Byung-hee and Choi Ki-ho founded Young Poong. It started with shipping, mining and trading activities before opening the country's first factory to extract zinc metal from ores. In 1974, it established Korea Zinc as a subsidiary.
The separate ownership arrangement lasted for five decades. The two parties agreed to a contract stating that major decisions affecting the other's property required mutual consent.
According to Young Poong, Korea Zinc began violating 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 Australian operations before becoming CEO in 2019 and chairman in 2022.
Young Poong said Mr. Choi has taken steps to dilute the Chang family's stake by issuing shares to companies friendly to Korea Zinc's current management.
“I started to realize that it was probably best to break up,” Choi told reporters this month.
The dispute quickly escalated. Young Poong opposed two proposals from Korea Zinc during last year's shareholders' meeting. Korea Zinc declined to renew a long-standing business agreement and took control of the board of directors of Sorin Corp., a jointly owned sales and marketing subsidiary.
Bracing for a showdown, Young Poong teamed up 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, U.S.-educated financier who published a loosely autobiographical novel in 2020 about a young banker who becomes entangled with powerful chaebol families.
MBK has a history of challenging the South Korean establishment and launched a takeover bid in 2023 to oust the chairman of Hankook, the parent company of South Korea's largest tire maker. It failed to secure a controlling interest. In this case, MBK said it was brought in as a “white knight” by Young Poong.
In September, Young Poong and MBK announced a bid for Korea Zinc shares, softening their bid twice. Korea Zinc, which opposed the offer, responded by buying back some of its shares, but a week later announced plans to issue new shares to investors at a much lower price.
The stock price plummeted, angering shareholders and drawing the attention of regulators concerned about a lack of disclosure. The company has withdrawn the issue.
After apologizing, Mr. Choi said he would step down as chairman after the shareholders' meeting but would remain Korea Zinc's CEO. He called the share issuance plan 'not the wisest decision'.
A partner at MBK leading the Korea Zinc deal, Kim Kwang Il, said Korea Zinc's board was “trying to protect Chairman Choi's control at the expense of all shareholders.”
At the shareholders' meeting, both parties propose a list of directors. Young Poong and MBK own 47 percent of the voting shares, compared with 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 implements 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 the day-to-day running of Korea Zinc. They plan to hand the company over to current executives, but not to Mr. Choi.
“A company cannot achieve stability or good governance if the CEO lacks the trust of its largest shareholder,” said Chang Se-hwan, vice chairman of Young Poong and grandson of the founder.
The battle has become fierce. MBK has accused Mr. Choi of favoritism over a $380 million investment by Korea Zinc in a private equity fund run by his old classmate. Mr Choi said the investment yielded “decent returns”.
Korea Zinc has called Young Poong and MBK's actions a “hostile takeover,” even though Young Poong has owned a third of the company for decades. Fear of China is at the core of Korea Zinc's defense.
In a December letter to the U.S. State Department, Rep. Eric Swalwell, a California Democrat, expressed concern that MBK could harm U.S. and South Korean efforts “to isolate and expand critical mineral supply chains” against Chinese influence.
Robert O'Brien, a national security adviser during the first Trump administration and now chairman of American Global Strategies, a consulting firm with foreign clients, wrote a letter on Jan. 16 saying the acquisition could give Beijing access to Korea Zinc and the Chinese activities could expand. dominance in crucial minerals. The letter was quickly promoted by Korea Zinc.
Mr. Kim, the MBK partner leading the deal, said the company's Chinese investor accounts for about 5 percent of his fund. He declined to identify the investor, but he said they had no influence. He called the concerns “completely unfounded.”
Mr Choi said he wanted a “more amicable” parting, but admitted it was difficult not to take the dispute personally.
“For me it is important that it was my grandfather who founded the company and that it was my father who invested his life in 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 master of ceremonies at his wedding. However, he said he had concerns about the way Mr. Choi was running the company.
“In Korea, it is common for people to own 15 to 20 percent of a company and run it as if it were their individual property,” he said. “The moment you think like that, a company is doomed to fail.”
