In September 2024, private equity firm MBK Partners joined forces with Yeongpoong, the largest shareholder of Korea Zinc, launching a hostile tender offer that raised its bid price from 660,000 won per share to 830,000 won. This move brought to an abrupt end a 74-year partnership in South Korea's industrial history with no precedent. As a trillion-won-scale hostile M&A unfolded, the capital market's attention focused solely on one number: the total shareholding percentage secured by each side. With the MBK-Yeongpoong alliance accumulating approximately 41.1% of shares and surpassing Choi Yun-beom (Chairman)'s 37.9% stake numerically, it seemed only a matter of time before they seized control of the company. In fact, the Choi (Chairman) side fought fiercely with all its might in this trillion-won "war of money," partnering with Bain Capital to launch a counter-tender offer and attempting to pursue a 2.5 trillion won rights offering (paid-in capital increase) before ultimately withdrawing it.
However, the outcome defied market expectations. Previous attempts by the MBK-Yeongpoong side to take over the board of directors at shareholder meetings were all thwarted, and in a series of votes defending management control, the Choi (Chairman) side emerged victorious each time. The assumption that numerical superiority would directly translate into control of the company was shattered before a special financial engineering mechanism hidden within loopholes in corporate governance regulations. At the center of this fracture stood the "3% Rule."
Under the Commercial Act, the 3rd% Rule is a major shareholder cap (Cap) system that strictly limits the voting rights exercisable by major shareholders and their special related parties to a maximum of 3% of total issued shares when appointing or dismissing audit committee members. Unlike ordinary directors, audit committee members are elected separately at the shareholder meeting stage, making the 3rd% Rule, which operates powerfully at this point, a decisive factor that disadvantages the major shareholder side. Originally designed as a safety mechanism to check the unilateral management of large major shareholders and protect the rights of minority shareholders, this rule became a fatal variable that reversed the direction of the hostile M&A in this case. The MBK-Yeongpoong alliance, having invested trillions of won to secure a massive 41.1% stake, was grouped as a single major shareholder bloc, causing over 38% of voting rights to be neutralized in votes subject to the 3rd% Rule and instantly reducing their influence to a mere 3%.
In contrast, the voting rights of the Choi (Chairman) side, which were numerically disadvantaged, operated completely differently. While the shares directly held by the Choi (Chairman) family were capped at 3%, strategic partners such as Hyundai Motor Group, Hanwha, and LG Chem, with whom they have formed alliances, held their stakes separately in independent forms. As individual shareholders, each of these entities could exercise voting rights up to the maximum of 3%, creating a remarkable phenomenon that reversed the balance of power. The Choi (Chairman) side could secure actual voting rights in the range of 9% to 12% by adding the independent 3% voting rights exercised separately by friendly companies like Hyundai Motor, Hanwha, and LG Chem to their own 3%. Thus, a simple 3.2 percentage point difference in shareholding between the two sides was inverted into an actual voting right gap of approximately 7 to 9 percentage points or more after passing through the filter of the 3rd% Rule.
The destructive power of the 3rd% Rule stems from the criteria for determining "special related parties." The Commercial Act and its Enforcement Decree stipulate that in votes on appointing or dismissing audit committee members, voting rights held by the largest shareholder and their special related parties are aggregated and limited to 3%, while shareholders who are not the largest shareholder may exercise voting rights independently up to a maximum of 3% even if they share similar interests. MBK and Yeongpoong are "joint holders" who have agreed to exercise voting rights jointly, whereas the friendly companies maintain independent individual shareholder status legally despite their equity cooperation with the Choi (Chairman) side. It is precisely this difference in status that created a fork in the road where shareholding percentages became meaningless.
This corporate governance characteristic offers a lesson that "the violence of numbers" does not always guarantee victory in the capital market. Even in hostile M&A backed by trillions of won in financial resources, results cannot be guaranteed without meticulously analyzing legal rules and designing shareholding structures. The moment a major shareholder's voting rights are capped at 3%, the total number of effective voting rights drops sharply, triggering a "voting right amplification phenomenon" where the actual value of a single vote held by the National Pension Service or minority shareholders multiplies several times over. Naturally, the votes of minority shareholders and the National Pension Service are elevated to become absolute swing voters that determine the direction of management control. It is not the size of capital but shareholder value and legitimacy that hold the key to victory or defeat.
This is not the first time the 3rd% Rule has shaken the outcome of a management rights dispute. Even under the original "individual 3% Rule," which served as the prototype for the 3rd% Rule, there was already a significant reduction in the voting rights of major shareholders' special related parties during the Hanjin Kal management rights dispute in 2020. However, at that time, shares held by special related parties were individually recognized up to 3% each. In contrast, with the July 2025 amendment to the Commercial Act, the "aggregated 3% Rule" now bundles them together and limits them to a single 3%. Since this structure inherently reduces the voting rights of the largest shareholder side, the destructive power in the Korea Zinc incident has become even greater. The reason market participants have paid particular attention to this incident is that the shareholding gap (3.2 percentage points) and the magnitude of the reversal in actual voting rights are at record-high levels, and behind it lies national interest concerns involving zinc and nickel refining technologies, which are key materials for semiconductor and secondary battery supply chains.
Amid an ongoing management rights dispute, the intensifying atmosphere ahead of the extraordinary shareholder meeting scheduled for September 9 clearly demonstrates the ripple effects of the 3rd% Rule. Both sides are exerting all their efforts to secure votes on agenda items regarding the appointment of successors to resigned directors and the separate election of audit committee members. In particular, with all four major domestic and international voting rights advisory firms—ISS, Sustainalytics, PIRC, and Egan-Jones—recommending approval for Korea Zinc's proposed audit committee candidates due to their professionalism and accounting independence, while recommending opposition to the candidates recommended by the MBK-Yeongpoong side, evaluations suggest that the vote confrontation is unfolding in favor of the Korea Zinc side. In response, sensing a crisis, the MBK-Yeongpoong side is diversifying its battlefield by countering with legal battles, including allegations of self-dealing related to past investment deals and filing for preliminary injunctions.
If this trend continues and the Korea Zinc side successfully defends its audit committee seats and secures two out of four independent director positions, the board will be restructured into a tightly balanced deadlock. The MBK-Yeongpoong alliance, facing a 41.1% versus 37.9% shareholding structure, will have to endure repeated vote confrontations at each regular shareholder meeting, inevitably accumulating borrowing interest and financial costs amounting to trillions of won. Conversely, the Choi (Chairman) side also faces uncertainty, as its actual voting right advantage is only a temporary balance since friendly companies are independent shareholders moving according to their own individual interests.
This incident has exposed structural loopholes in the 3rd% Rule and led to discussions on legal amendments. Critics point out that if techniques such as "splitting friendly shares" or "parking shares" are used to distribute stakes among companies with substantial friendly relationships, the major shareholder cap regulation could be neutralized, allowing the system to be misused as a corporate governance evasion technique contrary to its original intent. Consequently, voices calling for revising the criteria for determining special related parties based on whether there is actual consensus in decision-making are expected to gain strength.
The answer to the question "Why did the 3rd% Rule reshape the capital market?" is clear. In the Korean stock market, which has transformed into a hunting ground for capital, it has been reinterpreted as both a legal defense shield protecting the technological value and long-term growth potential of national key industries and as a powerful financial weapon. The case of MBK-Yeongpoong, despite securing an overwhelming shareholding stake yet struggling, left a painful lesson for private equity firms: they must conduct precise analyses of corporate governance regulations before accumulating shares.
Ultimately, the 3rd% Rule has proven that even in the harsh jungle dominated by trillions of won in financial resources, legal mechanisms and the legitimacy of shareholder value can function as clear checks and balances. Regardless of where the outcome of the upcoming vote confrontation leads, the Korea Zinc incident will be recorded as a decisive milestone that imprinted the "politics of actual voting rights" on the Korean capital market and as a heavy task for how to establish the essential value of national key industries and the sophistication of corporate governance against attacks by short-term capital.
in OPINION
