Former Goldman Banker Turned PE Billionaire Takes On Korea’s Chaebol

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(Bloomberg) — In his 2020 bestseller, billionaire banker Michael ByungJu Kim is the lead character of a banker who finds himself embroiled in dealings with South Korea’s wealthiest families.

Now, the truth seems to be following the myth.

Last month, Kim’s private firm MBK Partners Ltd became embroiled in one of the most intense corporate battles in recent Korean history, a rivalry with the founding families of Korea Zinc Co. The two sides are vying for control of the world’s largest producer of refined steel, which has played a key role in global efforts to unseat China in providing key inputs to the energy transition.

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It’s a smart move by Kim, a Korean-born, US-educated financier, and a rare one. Although private sector involvement in the country’s economy has grown dramatically over the past two decades, few players have taken on the powerful, family-run conglomerates known as chaebol, which have been written off as too dirty and likely to be unproductive.

And it’s a significant financial bet. MBKP and its partner Young Poong Corp., the largest shareholder of Korea Zinc, spent about $660 million to buy back stock issued to shareholders during their takeover bid, increasing their combined stake to more than 38%. However, shares of Korea Zinc have since risen nearly 86% above the double 830,000-won-per-share offer, meaning further efforts to improve the holding will come at a punitive cost.

The stock closed Tuesday at 1,543,000 won, valuing the company at about 32 trillion won, or $23 billion. That’s about 49 times what analysts expect it to do this fiscal year — a star-studded number of shares more than their industry-heavy counterparts.

Worse, the conflict may drag on for years. A group on the other side of the control battle – led by Korea Zinc Chairman Choi Yun-beom and backed by private equity firm Bain Capital – owns more than 35% of the company after promising to buy back the shares. The company’s rising market value suggests that investors are betting on a long battle that could see both sides win big stakes.

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MBKP is determined to be on the board of Korea Zinc, focusing on improving business management, according to the purchasing company. It wants to concentrate management in the hands of the company’s top executives, the key shareholders who have power only through the board. On Monday, it called for an extraordinary general meeting to present its proposals.

Korea Zinc has dismissed MBKP’s ambitions to improve corporate governance as “absurd”. Responding to a request for comment on MBKP’s plan, the company said its suitor is “a PE firm hunting for deals to make a profit.”

“MBK’s main goal is to make money, no one can deny that,” said Park Ju-gun, head of research firm Leaders Index in Seoul. “Addressing the issue of corporate mismanagement is its main weapon in this battle, because it allows the company to justify its actions and gain the support of shareholders.”

Barbarians at the gate of the Chaebol

Korea’s emerging masses have helped transform the country into an economic powerhouse and one of the world’s leading nations. In past decades, they still play a major role in the country.

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But the next generations – once or twice removed from the bishops who made their fortunes with the help of military dictator Park Chung Hee from the 1960s onwards – have often faced financial pressure or been caught up in succession conflicts, leading to complex corporate structures and cliffs. valuation discounts. Questionable management practices and mistreatment of minority shareholders, have become increasingly difficult to hide as they spread.

“This kind of move could be a game-changer in terms of realigning power in Korea’s corporate governance landscape,” said Sanghyun Park, an analyst at Clepsydra Capital. “In my view, Michael’s destiny is to break out of the hostile Korean M&As market – untapped but ripe with potential – by dismantling the chaebol-centric system.”

Kim, 61, is not the first critic of the program.

Admittedly, the billionaire behind one of North Asia’s biggest shopping malls is no outsider. Kim married Park Kyung–Ah, daughter of the late Korean Prime Minister Park Tae-joon, who built Posco Holdings into one of the world’s largest steelmakers from scratch.

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His net worth is estimated at $9.2 billion according to the Bloomberg Billionaires Index, and MBKP has more than $30 billion under management. In 2022, the company sold a nearly 13% stake to Dyal Capital Partners for approximately $1 billion.

“Kim is not against all Korean chaebols. Remember, the Young Poong group, MBK’s partner, is a medium-sized chaebol,” said Douglas Kim, an analyst at Douglas Research Advisory. “It chose Korea Zinc as it may believe that it is not undervalued and, with improved corporate management, it may unlock even greater value in the long term.”

However, his novel, “Offerings”, which is to be turned into a film, suggests sympathy for the ruling families of Korea.

In a 2022 interview with Best of Korea, a book aimed at Koreans, Kim explained writing the book after wanting “to issue a jeremiad against the greed I saw rampant on Wall Street and the corruption within Korea’s chaebol – the ‘Inside Baseball’ it’s taking over the business world.”

A spokesperson for MBKP said the letter, which is a work of fiction, does not reflect the company’s position. He added that Korea Zinc is a one-off investment, and has not shown any investment philosophy.

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Goldman Apprenticeship

Poor corporate governance has long plagued Korean conglomerates, and is an issue that successive governments have failed to address. In an investor note earlier this year, Kim had already taken part in discounted Korean ratings.

“Korea is still cheap. Historically, Korean companies have traded at a ‘K discount,’” wrote MBKP’s Kim. He said that also extends to private markets. “Our investments in this market have been made at a 25% discount on average compared to the rest of the world. Korea is the price market of Asia. “

Not all of Kim’s bets over the past two decades have paid off, of course. Shortly after MBKP struck a $6.1 billion deal to buy Tesco Plc’s South Korean operations in 2015, it faced the wrath of union workers over potential job losses. Almost a decade later, that hold is still on MBKP’s books.

There is also cautionary news from other financial strategists coming to Korea – including Paul Singer’s Elliott Management, which has clashed with South Korea’s largest listed company, the Samsung Group.

Fortunately for MBKP, Kim has a reputation for determination. A venture capitalist who started with Goldman Sachs before moving into private equity, he became the Carlyle Group’s top Asian trader before deciding to strike out on his own.

At Carlyle, his colleagues nicknamed him “Captain Ahab,” after the whale in Melville’s “Moby Dick,” a testament to his persistence.

“Chaebol heirs are all watching this dispute because most of them are at risk of an ownership fight,” said Park Ju-gun of Leaders Index. “If MBK wins, they know that fights like this can spread like wildfire.”

—Courtesy of Youkyung Lee.

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