Korea Zinc’s recent acquisition of Igneo Holdings has ignited controversy, particularly regarding the substantial profits realised by the sellers.
The primary sellers included MCC NFT, Igneo’s largest shareholder with a 47.5% stake, alongside investment funds such as PCT Igneo Investor (38.2%), Windchime (5%) and the Tarsadia Group (5.7%).
Chairman Choi Yoon-beom has been called on to clarify his connections with the sellers by the largest shareholder alliance of Korea Zinc, which includes MBK Partners and Young Poong.
MBK Partners and Young Poong have raised issues about the associations between MCC NFT, Tarsadia Group and the other investment funds involved.
Reports indicate that the sellers earned profits exceeding 100-times their initial investment during the 2022 acquisition.
A representative from MBK Partners said: “Korea Zinc’s acquisition of Igneo Holdings in 2022 was executed at a valuation that defies market norms, granting the sellers extraordinary profits.
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By GlobalData“The absence of thorough due diligence raises significant questions about the rationale for this transaction. Chairman Choi must provide shareholders with a clear explanation of his relationship with the sellers.”
Igneo Holdings’ shares were fully acquired in 2022 by Korea Zinc in two phases, occurring in July and November, through Pedal Point, a subsidiary established earlier that year.
The total acquisition cost exceeded 580bn won ($450m), with disclosures revealing that Korea Zinc paid an extraordinary 50-times Igneo’s 2021 revenue for the acquisition, despite a negative equity report of KRW -1.9bn by Igneo in 2021.
Founded in February 2021, Igneo was less than 18 months old at the time of the first acquisition in July 2022.
Notably, negotiations for the acquisition commenced under a non-disclosure agreement just five months after Igneo’s establishment.
The agreed acquisition price, which was more than 100-times the company’s initial capital, is considered highly unusual for a mergers and acquisitions deal. Igneo’s initial capital was approximately $2.75m (at $27.50 per share).
However, Korea Zinc paid around $300m for the acquisition of Igneo’s existing shares, with per-share prices of $2,466 in July, $2,621 in November, and $2,708 for additional shares which far exceeded 100-times the initial capital.
Within only 18 months, Igneo’s founding shareholders saw their investment grow by a factor of 100.
The controversy has highlighted broader issues surrounding corporate governance and accountability in Korea Zinc’s decision-making, particularly regarding significant acquisitions.
MBK Partners, through its special-purpose vehicle Korea Corporate Investment Holdings, had recently acquired an additional 1.13% stake in Korea Zinc.
This acquisition raises MBK Partners and South Korean conglomerate Young Poong’s combined stake to 40.97% of total issued shares and 46.7% of voting shares, excluding treasury stock, moving them closer to majority control.
