SEOUL, South Korea--(BUSINESS WIRE)-- Sun Metals Corporation (SMC), an overseas subsidiary of Korea Zinc (KRX: 010130) stated that through its recent acquisition of Young Poong shares, which prevented the hostile takeover of its parent company, it was able to ensure stable business operations in Australia and maintain a sustainable future growth engine. The company also refuted the claims made against the purchase, providing details that proving such accusations held no legal grounds.

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Company Share Structure of Sun Metals Corporation Pty Ltd (Image: Korea Zinc)

A legitimate measure to ensure business sustainability and competitiveness

SMC stated that its share acquisition of Young Poong was an essential measure to block the hostile takeover and ensure business sustainability. It explained that, as a corporation, this decision was made through a board resolution based on rational judgments on potential financial and business outcomes.

According to SMC, the MBK-Young Poong consortium was deemed to lack experience in overseas smelting operations. It was examined that if their hostile takeover succeeds, there would be a significant risk of the scale of SMC's business being reduced. Moreover, should Korea Zinc’s renewable energy operations in Australia, which supply essential power to SMC’s operations, were to face disruptions, the competitiveness of the Australian smelter could be severely undermined.

In support of these concerns, Australia's political, business, and local communities have also expressed their serious concerns about the negative consequences of MBK-Young Poong's hostile takeover. KAP (Katter's Australian Party) Federal Member for Kennedy, Hon Bob Katter, has stated that “A bunch of slithering shareholder sharks that wouldn't know the difference between zinc and Kryptonite want to play Monopoly games – they will conquer and divide with disastrous outcomes,” adding that “High-level government intervention and diplomacy must be used to stop this takeover and keep Australian jobs and industry.” Former Townsville mayor Jenny Hill has also chimed in, voicing concerns over the potential change in management by pointing out that “the Young Poong CEO and another senior executive from the company were arrested after a series of workplace injuries.”

SMC’s recent decision is also being recognized as a rational investment choice. The company stated that it acquired Young Poong shares from the Choi family at a price approximately 30% lower than the closing price, making the deal highly attractive from a pricing perspective. Additionally, Young Poong is considered an undervalued, low-PBR stock, with its price-to-book ratio (PBR) ranging between 0.1 and 0.2. Given recent demands from minority shareholder groups and activist funds for governance improvements and shareholder-friendly policies, SMC believes there is strong potential for a stock price increase. Furthermore, considering Young Poong’s average dividend payout, SMC expects to receive approximately KRW 1.9 billion in annual dividend income.

An SMC representative commented, “This acquisition presents significant investment appeal, with both pricing advantages and potential stock appreciation. We will make every effort to maximize returns and ensure this becomes an even more successful investment in the future.”

Cross shareholding is a Supreme Court-recognized legal and legitimate defense against hostile takeovers

SMC clarified that utilizing cross shareholding as a defense mechanism against a hostile takeover is a lawful and legitimate measure, as recognized by Supreme Court precedents.

*The Supreme Court has stated the legislative intent of Article 342-3 of the Commercial Act as follows:
"This provision aims to ensure the stability of corporate management by allowing a company, whose managerial control is threatened due to another company's acquisition of 10% or more of its total issued shares and exercise of voting rights, to take defensive measures by acquiring 10% or more of the other company's issued shares in return. As a result, pursuant to the restriction on voting rights of cross-held shares under Article 369(3) of the Commercial Act, neither company would be able to exercise voting rights against the other, thereby eliminating the possibility of control by the opposing company and safeguarding managerial stability."

*Article 342-3 (Acquisition of Another Company's Shares)
If a company acquires more than 10 percent of the total issued and outstanding shares in another company, it shall without delay notify the company of such acquisition.
[This Article Added by Act No. 5053, Dec. 29, 1995]

The voting rights restriction is lawful under the Commercial Act’s cross shareholding provisions

SMC stated that its acquisition of Young Poong shares resulted in the establishment of a cross shareholding structure between Korea Zinc and Young Poong, legally restricting Young Poong’s voting rights. The company emphasized that this was a legitimate measure taken within the framework of the law.

Regarding claims that voting rights restrictions under cross shareholding rules do not apply to foreign corporations, it refuted such arguments, stating that they stem from a misinterpretation of the legal provisions.

SMC clarified that the provisions on foreign corporations in Chapter 6 of the Commercial Act are intended solely to regulate and oversee the domestic activities of foreign companies operating in Korea. These provisions are unrelated to whether a foreign entity is subject to cross shareholding regulations when exercising voting rights in a domestic corporation such as Korea Zinc.

The company further emphasized that the Ministry of Justice's authoritative interpretation makes this even clearer. The Ministry has previously ruled that whether the term "company" or "subsidiary" in individual provisions of the Commercial Act includes foreign entities should be determined based on the intent of each regulation. Specifically, the Ministry has already concluded that the term "company" subject to self-dealing restrictions under Article 398, Subparagraphs 4 and 5, includes foreign subsidiaries.

Based on this interpretation, whether foreign companies fall under cross shareholding restrictions should be assessed in light of the regulation’s purpose, which is preventing distortions in corporate governance.

Legal experts have previously voiced concerns that exempting foreign subsidiaries in cross shareholding regulations could have major negative consequences, such as allowing a large shareholder to increase its control over a parent company by allowing a foreign subsidiary of a domestic affiliate to purchase shares in the domestic controlling company.

Additionally, according to prominent textbooks on commercial law, if the company subject to voting rights is based in South Korea, a foreign company that acquires shares in the domestic company must be subject to cross shareholding regulations under South Korean commercial laws.

*Article 369 (Voting Rights)
(1) Every shareholder shall have one vote for each share.
(2) No company shall be entitled to vote in respect of treasury shares.
(3) In cases where a company, its parent company and its subsidiary company together, or its subsidiary company alone holds more than ten percent of the total issued and outstanding shares in another company, such another company shall have no voting rights for shares it holds in the company or the parent company.
(Added by Act No. 3724, Apr. 10, 1984)

SMC is a share-issuing stock corporation established in Australia under a common corporate structure

The company clarified that the assertation from certain sources that SMC is a limited liability company did not reflect the facts.

According to SMC, its official name, as registered with an Australian public agency, is ‘SUN METALS CORPORATION PTY LTD,’ where ‘PTY LTD’ denotes a ‘Proprietary Company, Limited By Shares’ under Australian corporate law.

SMC explained that, under Australia’s Corporations Act 2001, a ‘Proprietary Company, Limited By Shares’ (Pty Ltd) is a corporation characterized by capital, shares, and limited liability of its shareholders, and is typically classified as a non-public corporation composed of no more than 50 shareholders.

Furthermore, the company stated that Pty Ltd company issues shares with shareholders bearing limited liability only up to the amount of their subscription, and added that certain lower-court rulings in Korea refer to a ‘Pty Ltd’ as a ‘non-public corporation.’

In addition to issuing a total of 551,831,931 ordinary shares, SMC holds both the authority and records to issue corporate bonds and other debt securities. Notably, factors such as raising capital from shareholders who bear limited liability through share issuance and the capacity to issue corporate bonds, as confirmed by SMC following a legal review, clearly establish its legal status as a stock corporation.

*Concept of a Corporation (Source: Ministry of Government Legislation in Korea)
∙ A corporation is a company established by raising capital from multiple individuals through issuance of shares. Those who purchase shares become shareholders, and their liability is limited to the amount of their subscription, and they do not bear the direct responsibility for the company’s debts
∙ Accordingly, a corporation fundamentally comprise three elements: (1)Shares (2)Capital (3)Limited liability of shareholders

*SMC Corporate Information (Source: Australian Securities and Investments Commission (ASIC))

The Stock acquisition was done in compliance with legal regulations

SMC stated that the company is not subject to the regulations of the Fair Trade Act since the company is a foreign corporation established under the Australian law. According to Articles 21 and 22 of the Fair Trade Act, the prohibition on cross shareholding and circular shareholding applies only to “domestic companies” or “domestic affiliates,” meaning that SMC, as an Australian company, is not subject to the Fair Trade Act for acquiring Young Poong shares.

Additionally, SMC, which has been actively operating business in Australia for a long time, made the decision to acquire Young Poong shares on reasonable business judgment and at its own discretion. Therefore, SMC believes that this stock acquisition does not constitute an unlawful act. Media reports citing recent statements from government officials further support the claim that the formation of cross shareholding is not subject to the regulations of the Fair Trade Act.

*MONOPOLY REGULATION AND FAIR TRADE ACT

Article 21 (Prohibition of Cross Shareholding)

1. No domestic member company of a business group subject to limitations on cross shareholding shall acquire or own shares of a domestic affiliate that has acquired or owned its own shares: Provided, That this shall not apply in any of the following cases:

Article 22 (Prohibition of Circular Shareholding)

1. No domestic member company of a business group subject to limitations on cross shareholding shall secure any shareholding in an affiliate (limited to any shareholding in a domestic affiliate; hereinafter the same shall apply) to form a circular shareholding; and no domestic affiliate in a circular shareholding relationship among the member companies of a business group subject to limitations on cross shareholding shall secure any additional shareholding in an issuing company. (excerpted)

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