By Don Southerton, KoreaLegal.org Editor
Doing business in Korea requires some savvy. There are strategies and tactics that minimize clashes. Apple, Google, and Lone Star seem to top my list of American firms that struggle. Many of the issues reach back years, some just continue to pop-up. For those looking at Korea, you can be proactive and enter the market successful. In fact, that’s exactly what I help firms do. But I digress….
Seems like the clock is ticking away fast for the Lone Star’s KEB-Hana Bank deal. Past posts in KoreaLegal.org document how the deal has met obstacles.
Chosun Ilbo notes:
The third attempt by hedge fund Lone Star to sell Korea Exchange Bank looks set to go the way of the other two and fail. The Financial Services Commission on Thursday [announced] it will decide whether to approve the sale of KEB to Hana Financial Group only after a court case against Lone Star over stock manipulation of KEB Credit Card has concluded.
The FSC withheld approval of the sale of KEB to Kookmin Bank and HSBC in 2006 and 2007, citing ongoing legal disputes. Lone Star is fighting allegations that it acquired the bank at a knockdown price after the 1997 Asian financial crisis.
In November last year, Hana Financial Group signed an agreement with Lone Star to buy KEB for W4.69 trillion, and if the FSC does not grant approval by May 24, either side can nullify the agreement without penalty.
The WSJ adds:
SEOUL—Hana Financial Group Inc. Chairman Kim Seung-yu on Friday said the lender is considering its options for the proposed 4.69 trillion won ($4.31 billion) acquisition of Lone Star Funds’ 51% stake in Korea Exchange Bank in an effort to keep the deal alive despite a major regulatory setback.
The Financial Services Commission on Thursday said it likely won’t be able to rule on the deal by a May 24 deadline because of a procedural issue over whether Lone Star is qualified to be KEB’s largest shareholder. Either party can walk away from the deal if the transaction isn’t completed by that date.
“There’s about 10 days left,” Mr. Kim said, “so both sides are discussing what good options there may be for the deal.”
Hana’s shares fell 15% to 37,850 won ($34.78)—the lowest since late November—in reaction to the FSC ruling, as investors worry the deal is on the verge of collapse. Acquiring KEB would help Hana compete with rivals like Woori Finance Holdings Co., KB Financial Group Inc. andShinhan Financial Group Co., and Hana’s strong retail-banking business will be complemented well by KEB’s strength in foreign exchange and corporate financing.
Speaking to Dow Jones Newswires, the executive said Hana remains focused on trying to find a way to make the deal happen despite the regulatory setback, and added that it isn’t considering a bid for the South Korean government’s 57% stake in Woori Finance Holdings Co. that is expected to be put up for sale again as early as next week.
After a meeting with the board of directors later Friday, Mr. Kim said that if needed, he is willing to meet with Lone Star Chairman John Grayken to find a solution, including extending the deadline. He declined to disclose the duration of the extension that the firm might seek.
“I believed that (a Hana-KEB tie-up) was the best possible combination,” Mr. Kim said. “I thought KEB had the infrastructure to help Hana expand abroad, and I still believe this. KEB is still valuable.”
When asked whether Hana might return excess capital it has raised to finance the transaction to shareholders should it fail to close the KEB deal, the executive said on separate occasions that the firm would consider paying a dividend as well as a share buyback.
The company could also consider acquiring a bank overseas or strengthening its non-banking operations with the excess capital if the KEB deal collapses, Kim said.
Mr. Kim said he will brief the board of directors later Friday and discuss how to proceed with the deal.
Hana was considered the most likely bidder for Woori last year when the government launched the stake sale, as the combination would have allowed Hana to leapfrog other rivals and become the dominant Korean bank. But Hana surprised the market by striking a deal with Lone Star in November.
The deal was widely expected to be approved in March, and officials at the FSC had acknowledged as much at the time. But that changed when the local Supreme Court overturned a Seoul High Court decision to acquit Lone Star on charges of market manipulation and sent it back to the High Court for a new verdict. A guilty verdict would mean Lone Star is unfit to be KEB’s largest shareholder, which complicates the deal.
Lone Star has been fighting charges that it and its employees manipulated the stock price of KEB’s then-listed credit-card unit in 2003 in order to engineer a cheaper merger between it and the bank. The Supreme Court’s decision subsequently threw the deal into a limbo, with the FSC refusing to rule on whether to allow Hana’s acquisition of the KEB stake until it can rule on Lone Star’s standing. The regulator also didn’t give any guidelines on when it might be able to rule.
While analysts say the deal may be in jeopardy, some say that Hana and Lone Star may look to extend the deadline in order to keep the deal alive.
“The problem stems from Lone Star’s qualification, and the fund will have a tough time finding a new buyer unless there’s a final ruling from the courts…and Hana’s 14,250 won per share offer will still be attractive from Lone Star’s perspective,” Daishin Securities said in a report.