KEB set to marry Hana, ditching ANZ at the altar

Hana's $4.1 billion offer for Lone Star's 51% stake in Korea Exchange Bank could end seven years of controversy.

The saga that has run for the past decade in Korea’s banking sector seems, finally, to be reaching its climax. Yesterday, Hana Bank, the country’s fourth biggest lender, said that it will pay up to W4.75 trillion ($4.1 billion) for US private equity firm Lone Star’s 51% stake in Korea Exchange Bank (KEB). If successful, this will be Korea’s biggest ever bank acquisition.

Lone Star’s purchase of a stake in KEB in 2003 for $1.2 billion and its repeated failed attempts to sell it -- for instance to Kookmin Bank in 2006 and HSBC in 2008 -- has been a touchstone in several ways.

For international investors, it has aroused suspicions that Korea is wary of, or even hostile to, foreign takeovers of its leading domestic companies. For the Korean public, it has become a symbol of the country’s forced genuflection to IMF policy impositions during the Asian financial crisis and then its vulnerability to acquisitions by opportunistic investors. And for the Korean government, it has been a sensitive issue and often prevaricating process, which it hoped everyone could forget about.

Hana told local media about its plans on Tuesday, but the proposed deal was formally announced on Wednesday. The W4.75 trillion price-tag is equal to a 16% premium to KEB’s closing price yesterday. According to Reuters, Hana chairman Kim Seung-yu is on his way to London to sign a final deal with Lone Star today (Thursday).

Hana has made a filing to the Korea Exchange saying that it will buy the KEB shares within 10 business days of regulatory approval. Hana's share price closed 7.3% higher yesterday, while KEB’s shares dropped 0.8%.

It is unclear how Hana intends to stump up the cash and, on Tuesday, Kim ruled out a rights issue. Debt financing is a possibility, either through a loan or a bond issue, but there have also been reports that Hana is in preliminary talks with private equity firms, including Carlyle Group and Kohlberg Kravis Roberts & Co, to fund the acquisition.

Until a couple of weeks ago, ANZ, a leading Australian bank, was viewed by analysts as the only serious suitor for KEB. Its interest had been publicised since early summer, and it had, apparently, recently completed due diligence. The disclosure of Hana’s interest was widely viewed as a ploy to force ANZ to raise its price. After all, Hana was meant to be focusing its attention elsewhere as it was widely tipped to be the frontrunner for buying the government’s remaining stake in Woori Bank, Korea’s largest lender by asset size. The first round of an auction for the Woori stake ends tomorrow (Friday).

ANZ doesn’t intend to out-bid Hana, but will announce its position after a deal is signed, according to Korean news reports. Other reports have suggested that KEB would prefer ANZ as a buyer, not least to keep its labour unions happy. The unions fear job losses as a result of an inevitable restructuring should Hana take over the bank.

Meanwhile, Texas-based Lone Star, and its adviser, Credit Suisse, have been keeping quiet.

According to KEB data, Lone Star has recovered W1.87 trillion of its W2.15 trillion investment in KEB since its 2003 acquisition, mostly in the form of dividend payments.

¬ Haymarket Media Limited. All rights reserved.