Hana's board approves $3.5b KEB purchase
Hana Financial Group has approved a plan to acquire the 51% stake in Korea Exchange Bank (KEB) held by US buyout fund Lone Star for KRW3.92 trillion ($3.5 billion). Pending regulatory approval, the transaction could be completed by the year’s end, signaling a close to a drawn-out exit process that began in 2006.
Regulators are expected grant their blessing to the deal given that they ordered Lone Star to sell down its stake to less than 10% after the firm was found guilty of manipulating KEB's stock price around the time of its 2003 purchase of the group. As part of that ruling, Lone Star was ordered to pay KRW25 billion ($21 million) in damages, and the firm's former South Korea head, Paul Yoo, was sentenced to three years in prison. He was charged with spreading rumors about KEB's credit card unit, KEB Credit Services, in 2003, to diminish its share price and make it cheaper to acquire.
While the legal proceedings droned on, Hana, Korea's fourth-largest financial services group, waited in the wings. Hana offered to buy the 51% stake for $4.2 billion in November 2010, but regulators withheld their approval for the deal until they could resolve Lone Star's legal issues. In the meantime, the media hype related to Lone Star's court troubles - as well as a worsening economy - prompted KEB's share price to drop, reportedly causing Hana to launch negotiations on lowering the purchase price. In July, the two sides had agreed to cut the price tag by about $260 million from its original $4.4 billion. Last week, media reported that the parties were considering cutting the price of KEB's shares by approximately KRW1,000 apiece - or about 7%, from KRW13,390 - to facilitate the deal's close. However, by Thursday, talks had moved to increase that discount to about 11%, to KRW1,4900 per share. That translated to its current price of KRW3.9 trillion.
Lone Star acquired its 51% stake in KEB for $1.3 billion in 2003. By 2006, the US-based firm first announced its intention to exit KEB, to domestic player Kookmin Bank for $7 billion. Regulators rejected that transaction, leading Lone Star to relaunch the auction process in early 2010. Since then, players such as MBK Partners and the Australia and New Zealand Banking Group (ANZ) have also entered talks about acquiring the asset. However, regulations and financing hurdles have resulted in Hana Bank being the last-standing bidder.
In the meantime, regulators are still eyeing KEB's business with interest. Last month, South Korean authorities launched a probe into the inside operations of KEB to ensure that the lender complied with court orders to fire members of its board related to Lone Star. Further news of the probe has not been disclosed.
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