Bloomberg News

Lone Star, Hana Cut KEB Deal Price by 6%, Extend Deadline

July 08, 2011

(Updates with comment from investor in fourth paragraph)

July 8 (Bloomberg) -- Lone Star Funds agreed to cut the price of Korea Exchange Bank to 4.4 trillion won ($4.2 billion) and extended the sale deadline as South Korean regulators delay approving Hana Financial Group Inc.’s takeover.

Hana will pay 6 percent less than the initial price of 4.7 trillion won, for a 51 percent stake in KEB, and set Nov. 30 as the new completion date, according to a regulatory filing today. The previous terms allowed Hana or the Dallas-based fund to scrap the deal if was incomplete by May 24 this year.

Lone Star is using record dividend payments to recoup its investment in the Seoul-based bank and agreed to cut the sale price further if it gets more payouts before the deal closes. Hana Chairman Kim Seung Yu aims to narrow the gap in assets and market value with bigger rivals KB Financial Group Inc. and Woori Finance Holdings Co. with the purchase, which is on hold until a court case involving Lone Star is resolved.

“Extending the contract isn’t enough to convince investors that Hana and Lone Star can complete the deal,” said Lim Jeong Seok, head of equities at Seoul-based KDB Asset Management Co., which oversees the equivalent of $11 billion in assets. “The uncertainty won’t end until the regulators give their go- ahead.”

Under today’s agreement, Hana will pay Lone Star 13,390 won for each KEB share, down from 14,250 won, according to the filing. Hana rose 0.3 percent to 38,800 won at the close of Seoul trading. The stock has lost 10 percent this year.

Further Dividends

While the price will go down if Lone Star receives further dividends, it will go up by 100 won per share for each month the deal is delayed beyond September, to account for general gains in asset values, the statement said.

The Seoul High Court began a retrial of Lone Star and its former local chief Paul Yoo and KEB on June 16 on stock manipulation charges after the Supreme Court in March overturned a 2008 acquittal.

The Financial Services Commission will not approve the transaction while legal proceeding questioning Lone Star’s legitimacy as the owner of the Korea Exchange Bank remain, vice chairman Shin Je Yoon said on May 12.

KEB on July 1 said it would pay 973.8 billion won in interim dividends, 497 billion of which will go to Lone Star, helping it recoup all of its $2 billion investment.

Lone Star bought Korea Exchange Bank in 2003 and has been trying to sell it for almost five years.

Court Probes

Its holding in the Korean lender came into question following a probe that began in 2006 into allegations it paid artificially low prices for the stake. Korea’s top court last year cleared the fund on that case.

Lone Star had to scrap an attempt to sell its stake to HSBC Holdings Plc in 2008 amid regulator’s delay in ruling on the eligibility. Kookmin Bank, now part of KB Financial, walked away from talks to buy control of Korea Exchange Bank in November 2006.

Hana and KEB’s combined assets at the end of March totaled 313 trillion won, trailing Woori’s 346 trillion won, KB Financial’s 345 trillion won and Shinhan Financial Group Co.’s 323 trillion won, according to filings by the companies.

--Editors: James Gunsalus, Brett Miller

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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