Bloomberg News

Lone Star Won’t Appeal Korean Conviction, Regulator Says

October 13, 2011

(Updates with closing share prices in eighth paragraph.)

Oct. 13 (Bloomberg) -- Lone Star Funds declined to appeal a conviction for stock-price manipulation in Korea, the nation’s financial regulator said, avoiding another hurdle to gaining approval for its $3.8 billion sale of a stake in a local bank.

The Financial Services Commission began a review to determine the legitimacy of Lone Star’s eight-year-old stake in Korea Exchange Bank after the U.S. buyout fund told the regulator about its decision, Kim Seok Dong, chairman of the regulator, told reporters in Seoul today. The FSC plans to announce its position early next week, said Kim, whose remarks were confirmed by the agency’s spokesman Ernst Lee.

Refraining from an appeal would end a five-year legal dispute that has delayed the fund’s 4.4 trillion won ($3.8 billion) sale of its stake in Korea Exchange to Hana Financial Group Inc. for almost a year. Hana shares advanced today on speculation that the takeover will progress as court proceedings draw to a close.

“The deal will gain pace,” said Hong Ki Seok, an analyst at Kyobo AXA Investment Managers Co., which oversees the equivalent of $4.9 billion. “Hana may be the best buyer of Korea Exchange for now, given the global market turmoil. It’ll be tough for Lone Star to find domestic or international buyers who would be willing to pay a higher price than Hana.”

Appeal Deadline

Dallas-based Lone Star has until the end of today to appeal to Korea’s highest court against its Oct. 6 conviction. The FSC said last week that it may order Lone Star to sell most of its stake in Korea Exchange Bank if the ruling stands.

The regulator said in May that it won’t approve Hana’s proposed takeover until Lone Star’s legal disputes are resolved. That prompted Hana and Lone Star to extend the deal deadline to Nov. 30 and cut the purchase price by 6 percent.

Lee Jung Dae, a spokesman for Seoul-based Hana Financial, declined to comment on Kim’s remarks today.

Hana climbed 7 percent to 38,800 won, the highest close since Aug. 4, in Seoul. The benchmark Kospi index gained 0.8 percent and Korea Exchange Bank advanced 4.3 percent.

“Investors seem to be betting that Lone Star won’t file an appeal by today’s deadline, which would close the legal dispute,” said Hong Hun Pio, an analyst at KTB Investment & Securities Co. in Seoul. “At this point, the best thing for Lone Star is to get the deal done with Hana.”

Jed Repko, a spokesman for Lone Star, declined to comment on whether the fund will file an appeal in an e-mailed response to questions.

The Seoul High Court fined Lone Star 25 billion won for its part in the stock-price manipulation case and sentenced its former local chief, Paul Yoo, to three years in prison. Yoo appealed against his conviction on Oct. 10.

--Editors: Russell Ward, Chitra Somayaji

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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