Lone Star ordered to sell down KEB stake within six months
Lone Star has been ordered to sell down the majority of its 51% stake in Korea Exchange Bank (KEB), South Korea’s sixth-largest bank by assets, to 10% or less within six months. This has reportedly prompted US-based Lone Star to seek out buyers as its exclusive negotiations contract with Hana Financial expires at the end of the month.
The order came after Lone Star was found guilty of manipulating KEB's stock price around the time of its 2003 purchase of the group, and was ordered to pay KRW25 billion ($21 million) in damages. In conjunction with that ruling, the court sentenced Paul Yoo (pictured), former head of Lone Star's South Korean operations, 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, making it cheaper for acquisition.
Hana has been waiting in the wings for approval to purchase Lone Star's stake for a year, and the official sell-down order offers it the long-awaited chance to close the deal. Hana offered to buy the stake for $4.2 billion in November 2010, but regulators withheld their blessing for the deal until they could resolve Lone Star's legal issues.
This waiting process and media hype related to Lone Star's court troubles - as well as a worsening economy - has prompted KEB's share price to drop, reportedly causing Hana to launch negotiations on lowering the purchase price by around one-fifth. Hana last month denied this, though it was reported in July the two sides had agreed to cut the price tag by about $260 million from its original $4.4 billion.
KEB shares have fallen 18% since July, and earlier this month, the bank posted a 63% drop in its third quarter profit, as well as a drop in net income to KRW117 billion from KRW319.3 billion a year earlier. It addtionally said it would not pay a quarterly dividend.
Lone Star is said to be approaching alternative buyers for the stake as its exclusivity agreement with Hana runs down, The Korea Times reported, citing sources close to the deal. Hana is still considered the leading contender to purchase the stake given that Lone Star had previously attempted to attract alternative buyers without success.
Lone Star first announced its intention to exit KEB in 2006 to domestic player Kookmin Bank for $7 billion. Regulators rejected that transaction, leading Lone Star to relaunch the action 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.
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