US-headquartered private equity firm Lone Star Funds is once again facing opposition to a proposed sale of Korea Exchange Bank (KEB), which it has now tried to exit three times.
The bank’s labour union wants to block Lone Star from selling its 51 percent stake to Korea’s Hana Financial Group for KRW4.7 trillion (€3.1 billion; $4.1 billion), taking issue with a $246.7 million dividend Lone Star may earn on top of the sale price.
Lone Star could not be reached by press time, and Hana did not respond to requests for comment.
KEB’s labour union realeased a statement that claimed Hana, a late entrant in the auction process, did not disclose the additional payment deal.
“The false disclosure was ill-intended to hide the actual acquisition price in Hana’s attempt to avoid domestic public criticism over the deal that was hastily signed without the due diligence of the target company against the prevalent market practices, and the possible public outcry over Hana’s guarantee of fixed profits to Lone Star Funds,” the statement said.
The false disclosure was ill-intended to hide the actual acquisition price in Hana’s attempt to avoid domestic public criticism over the deal.
KEB Labour Union
Lone Star put its stake in KEB up for sale for the third time earlier this year. MBK Partners, Standard Chartered Bank and Australia and New Zealand Banking Group (ANZ) were all named as potential bidders.
ANZ reportedly offered between $4.5 billion and $4.6 billion for Lone Star’s stake plus the 6 percent owned by Export Import Bank of Korea, according to a Reuters report in early November. The bid reportedly came in below Lone Star’s $5 billion-plus asking price.
The Texan firm's $1.2 billion investment in KEB, made in 2003, has been dogged by controversy since day one.
Shortly after the acquisition, the firm was accused by the South Korean government of colluding with corrupt officials and KEB management to exaggerate the financial distress of the bank at the time of the sale, enabling Lone Star to purchase its stake at a significant discount to its true market value. The firm was also accused of manipulating the share price of the bank’s credit card division, which it acquired after its purchase of the holding in the bank.
The ensuing court cases spanned five years and resulted in a five-year prison sentence for Paul Yoo, Lone Star’s former Korea head, as well as $26 million in fines for Lone Star and KEB.
Lone Star maintained its innocence throughout the process and was finally cleared of all wrongdoing in November 2008, but the legal wrangling had by then hampered Lone Star’s first two attempts to divest its stake in KEB.
In September 2008, HSBC Bank terminated its agreement to acquire Lone Star’s stake for $6.3 billion due to the ongoing court processes and other factors such as declining asset values in world financial markets and the two parties’ inability to agree on terms. The previous year, a $7.3 billion agreement to sell the stake to Korean bank Kookmin Bank also fell through.