Lone Star strikes back

The usually quiet distressed investor has set out with a proactive PR strategy in the face of numerous investigations by Korean officials. By Aaron Lovell.

Heavyweight champion Jack Dempsey often opined, “The best defense is a good offense.” It was good advice in the boxing ring and it’s a public relations strategy that usually tight-lipped, Dallas-based private equity firm Lone Star seems to be employing in regards to the firm’s recent troubles in Korea.

Grayken: setting the record stright

Not wanting the story to be told by government statements and Korean press reports, managing partner John Grayken went on the offensive Tuesday, taking to the podium in a meeting room at a Midtown Manhattan hotel to offer Lone Star’s side of the story. In front of a gaggle of business and Korean reporters, Grayken explained why the sale of Korea Exchange Bank (KEB) should proceed and described the investment climate in the country as being “anti-foreign.”

It was the firm’s second press conference in as many months. In April, the firm announced it was suing a former employee for embezzlement and would be donating over $100 million to Korea in a “gesture of good faith.”

The sale of KEB to Kookmin Bank was inked last Friday, a transaction that could earn Lone Star Close to $5 billion in profits, but the sale’s close is pending the outcome of an investigation by Korea’s Board of Audit and Inspection. This investigation is in addition to an investigation by the Supreme Prosecutor’s office into all of Lone Star’s 50 transactions in Korea.

The press conference also gave the firm the chance to distance itself from Steven Lee, a former employee that Lone Star is currently suing for embezzlement. Grayken pointed out that Lee’s transgressions had nothing to do with the KEB situation.

“Lone Star and its investors were the victims of his crime,” Grayken said. “Unfortunately, Mr. Lee’s illegal activities for his personal gain caused our companies to be in violation of Korean laws regarding restrictions on foreign currency transfer, manipulation of the financial statements of several of our investment subsidiaries and improper tax deductions.”

Considering the sentiment of many in Korea regarding foreign investment at the present time, the US press conference seems like a smart way to advance Lone Star’s side of the story. It elicited a quick response from the Supreme Prosecutor’s office in Seoul, which responded to Grayken’s charges that the climate in Korea was “anti-foreign.”

“[The] Lone Star investigation has been conducted fairly and carefully without any prejudice against foreign capital and it will be conducted according to law and principle,’’ the office wrote in an email Wednesday. “Furthermore, international capital in Korea that abides by global standards will not be disadvantaged.”

Despite the seemingly endless troubles in the country, there may be a silver lining for Lone Star. Grayken said that, if the authorities stick to their timeline, the investigations could be completed by this summer—and, with the right outcome, the KEB deal could close by the end of the year.

Grayken also indicated the firm could continue investing in the country. “We very much hope that all of these investigations will be completed in a timely fashion, so that we and our employees can get back to rebuilding our Korean business,” he concluded.