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

Now, fact appears to be following fiction.

Last month, Kim’s eponymous private equity firm MBK Partners Ltd stepped into one of the most fraught corporate battles in recent Korean history, a tussle pitting the founding families behind heavyweight Korea Zinc Co. against each other. The two sides are vying for control of the world’s largest producer of the refined metal, a key player in global efforts to loosen China’s grip on the supply of materials vital to the energy transition.

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It is an audacious move for Kim, a Korean-born, US-educated financier, and a rare one. While private equity’s involvement in the country’s economy has grown dramatically over the last two decades, few players have taken on the powerful, family-run conglomerates known as the chaebol, written off as too messy and too unlikely to yield.

It’s also a significant financial bet. MBKP and partner Young Poong Corp., Korea Zinc’s biggest shareholder, spent about $660 million buying up stock tendered by shareholders during their takeover bid, increasing their combined stake to more than 38%. Yet Korea Zinc shares have since climbed almost 86% above the twice-sweetened 830,000-won-per-share offer, meaning further attempts to boost holdings will come at a punishing cost.

The stock closed Tuesday at 1,543,000 won, valuing the company at close to 32 trillion won, or $23 billion. That’s equivalent to about 49 times the earnings analysts expect it to make this financial year — a multiple more familiar to tech stars than to its heavy industry peers.

No less crucially, the tussle could drag on for years. The group on the other side of the fight for control — led by Korea Zinc Chairman Choi Yun-beom and backed by private equity firm Bain Capital — holds more than 35% of the company after offering to buy back shares. The company’s surging market value suggests investors are betting on a prolonged battle that may see both sides jockey for bigger stakes.

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MBKP is prepared to take a position on Korea Zinc’s board, with a focus on improving corporate governance, according to the buyout firm. It wants to concentrate management in the hands of the company’s executive officers, with key shareholders exerting influence only through the board. On Monday, it called for an extraordinary general meeting to be convened to lay out its proposals.

Korea Zinc has dismissed MBKP’s ambitions to improve the company’s governance as “absurd”. Responding to a request for comment on MBKP’s plan, the company said its suitor was “nothing more than a PE firm hunting for deals to make a profit.”

“MBK’s ultimate goal is to make money, no one can deny that,” said Park Ju-gun, head of corporate research firm Leaders Index in Seoul. “Tackling the issue of poor corporate governance is its biggest weapon in this battle, because it allows the firm to justify its action and get support from shareholders.”

Barbarians at the Chaebol Gate

Korea’s sprawling conglomerates have helped to transform the country into an economic powerhouse and one of the world’s most important exporters. Decades on, they still play an outsized role in the country.

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But later generations — once or twice removed from the patriarchs who built fortunes with the help of military dictator Park Chung Hee from the 1960s onwards – have more frequently run into financial pressure or been caught up in succession squabbles, resulting in complex corporate structures and steep valuation discounts. Questionable governance practices and the poor treatment of minority shareholders, meanwhile, have become harder to camouflage as scrutiny increases.

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

Kim, 61, is not a novice critic of the system.

Granted, the billionaire behind one of North Asia’s biggest buyout shops is not exactly an outsider. Kim married Park Kyung–Ah, a daughter of late Korean Prime Minister Park Tae-joon, who built Posco Holdings into one of the world’s biggest steelmakers from scratch.

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His own 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 roughly 13% stake to Dyal Capital Partners for about $1 billion.

“Kim is not against all Korean chaebol. Remember, Young Poong group, which MBK is partnering with, is itself a mid-sized chaebol,” said Douglas Kim, analyst at Douglas Research Advisory. “It has selected Korea Zinc since it may believe that it is undervalued and, with improved corporate governance, may unlock even greater value in the long term.”

Yet his novel, “Offerings”, due to be turned into a film, suggests little sympathy for Korea’s dominant families.

In a 2022 interview with Best of Korea, a publication that targets the Korean diaspora, Kim described writing the book after wanting to “get out a jeremiad against the greed I saw running rampant on Wall Street and the corruption among the chaebol in Korea – an ‘Inside Baseball’ take on the business world.”

An MBKP spokesman said the book, a work of fiction, was not a reflection of the corporate position. He added Korea Zinc was a single investment, and did not reflect an investment philosophy.

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Goldman Apprenticeship

Poor corporate governance has long dogged Korea’s conglomerates, and it is also an issue successive governments have failed to fix. In an investor letter earlier this year, Kim had already homed in on Korea’s discounted valuations.

“Korea remains cheap. Historically, Korean companies have traded at a ‘K-discount,’” MBKP’s Kim wrote. That, he said, extended to the private markets too. “Our investments in this market were done at a 25% discount on average to the global comparables. Korea is the value market of Asia.”

Not all of Kim’s bets over the last two decades have paid off, of course. Soon after MBKP clinched 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. Nearly ten years on, that holding is still on MBKP’s books. 

There are also the cautionary tales from other financial buccaneers venturing into Korea — including Paul Singer’s Elliott Management, which clashed with South Korea’s biggest listed company, Samsung Group. 

Fortunately for MBKP, Kim has a reputation for determination. An accidental investment banker who started out with Goldman Sachs before venturing into private equity, he became Carlyle Group’s top Asia dealmaker before deciding to strike out on his own.

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

“Chaebol heirs are all watching this dispute very closely because many of them are at risk of ownership fights,” said Leaders Index’s Park Ju-gun. “If MBK wins, they know battles like this could spread like wildfire.”

—With assistance from Youkyung Lee.

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